Brazil gets 41 bn IMF loan

NEW YORK, NOV 14: The International Monetary Fund IMF, backed by a group of leading industrial nations, announced more than 41 billion i...

NEW YORK, NOV 14: The International Monetary Fund IMF, backed by a group of leading industrial nations, announced more than 41 billion in new loans Friday for Brazil, a much-anticipated rescue package designed to reinvigorate the country8217;s battered currency and rescue Latin America8217;s largest economy from impending collapse.

The emergency loan package includes 18 billion from the IMF and 4.5 billion each from the World Bank and Inter-American Development Bank IADB, and billions of dollars more from the United States, Japan and other bilateral donors. The IMF said 37 billion of the total will be available to Brazil over the next 12 months, if needed. Moreover, the IMF said it could release another 9 billion to Brazil immediately after its three-year loan package is approved by the IMF board.

The United States will provide roughly 5 billion, making it the largest bilateral contributor to the package. Other nations are contributing about 9 billion more, bringing the total package to just under42 billion. quot;It is vitally important for Latin America, the rest of the world and the United States that the international community take all steps sensible to limit the contagion that has come from the Asian financial crisis, and helping Brazil is very important in that respect also,quot; Treasury Secretary Robert Rubin said. quot;What is most important though in this instance acirc;euro;brvbar; is the effective implementation of a strong economic program that Brazil has announced.quot; The international aid package is necessary to help Brazil prevent an Asian-style financial meltdown. The funding is expected to help the country bring back overseas investors, restock its currency reserves, and stave off a devaluation.

More specifically, it is intended to protect the currency from devaluation by providing emergency credit lines to discourage speculators. It also will force Brazil to tame its gluttonous spending habits that have run up a 60 billion budget deficit.

Brazil was hailed as a Latin American success story afterimplementing an inflation-slashing economic stability plan in 1994. But that was before the spending, and before Asia and Russia succumbed to an economic crisis themselves.

If Brazil buckles under the weight of a currency devaluation, economists fear all of Latin America may be thrown into recession. Brazil8217;s currency, the real, has been ravaged since Russia devalued the ruble in August, triggering a massive flight of capital from emerging markets.The IMF can ill-afford another fiasco like Russia, where a 23 billion bailout package was approved in July but fell apart weeks later when Russia devalued its rouble and halted overseas debt payments. The devaluation sent world financial markets tumbling and nearly bled dry Brazilian currency reserves.