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Brazil leftwing party may give its backing to IMF plan

By: Raymond Colitt
 Financial Times, July 8, 2002



Brazil's leftwing Workers' party, which is still leading opinion polls ahead of October's presidential elections, says it may back an accord with the International Monetary Fund in order to reassure investors.

In recent informal meetings with the Brazilian government, the IMF has indicated it would be willing to back a plan to seek pledges of sound economic policies beyond the current administration, officials on both sides told the Financial Times at the weekend.

The current $15.6bn loan agreement with IMF expires in December of this year.

An agreement backed by the leading candidate is seen within the government's economic team as a way of getting Luiz Inбcio Lula da Silva, the frontrunning candidate of the Workers' party (PT), to formalise recent pledges of sound policies and to secure stabilisation efforts of recent years.

"We are trying to steer things in the right direction, provide a carrot for the next administration, and especially for Lula to adopt the right policies," said a top economic official.

"If he is going to win, why not get help in establishing credibility with the market," he asked.

Mr da Silva's lead in opinion polls and uncertainty over his economic proposals have helped trigger a three-month sell off in financial markets that drove Brazil's currency to a record low last week.

The PT has already made verbal commitments to maintain some of the economic stabilisation policies of recent years, including inflation control, contractual obligations,and a primary budget surplus (needed to service debt obligations) of 3.75 per cent of gross domestic product in 2003. "We have nothing against the idea in principle but obviously it will depend on the conditions," said Guido Mantega, the PT's leading economic adviser.

He said the party would not accept conditions such as the further reduction of import tariffs for the privatisation of the power sector.

The party is due to present its economic proposals within a fortnight.

Though Josй Serra, the government presidential candidate, is the leading proponent of economic continuity, his support for an IMF deal is also uncertain, as it could give Mr da Silva a more market friendly image and win over voters from Mr Serra's camp.

Arminio Fraga, central bank chief, will travel to the US this week for meetings with the US Federal Reserve and the IMF.

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