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Friday, 16 March, 2001, 17:14 GMT
Real crisis in Brazil
Petrobras platform P-36 tilts in the Atlantic ocean off the coast of Brazil
Brazil: crisis on land as well as disaster at sea
Stockmarkets in South America's largest economy, Brazil, faced another day of turmoil on Friday, as the country's currency, the real, plunged to two-year lows.

It fell 2% from Thursday to 2.14 against the dollar at about 20.30 GMT.

The real's fall was caused mainly by the economic slowdown in the United States and expectations that its neighbour Argentina is about to deliver the country some tough economic medicine.

slum in Brazil
A favella - or shanty town - in Sao Paulo
Argentina's new economics minister Ricardo Lopez Murphy was to set out his prescription for his country's ailing economy later on Friday.

An explosion on the world's biggest offshore rig off the coast of Rio de Janeiro which killed at least one worker - nine others are missing - added to the sense of crisis.

Shoring up the currency

On Thursday, the country's Central Bank intervened in the markets to prop up the currency.

But that failed to halt its slide, with the currency reaching its second lowest ever close on Thursday at 2.097 to a dollar.

"Everything is negative," said one trader on the Sao Paulo Stock Exchange, "it's horrible".

The previous time the real hit similar lows was two years ago in March 1999, when it reached 2.17 per dollar after the currency was devalued amid an emerging markets crisis.

Recession

The real, introduced in 1994 as Brazil's inflation-busting currency, was once stronger than the dollar.

But faced with a mounting crisis in the economy, the government under President Fernando Henrique Cardoso carried out a devaluation in January 1999, taking the markets by surprise.

A subsequent hike in interest rates to nearly 40% a year, designed to keep a grip on inflation, added to the already huge cost of Brazil's rapidly expanding mountain of debt.

In March 1999, after protracted talks, the International Monetary Fund approved a $41.5bn financial rescue package to help bail out the Brazilian economy.

In return, President Cardoso had to agree to tough economic reforms, designed to pull the country out of one of the most serious economic crises it has ever faced.

These included slashing public spending and pledging to keep inflation in single digit figures.

The deal was seen as vital to restoring credibility to Brazil's economic policies and avoiding an Asian-style meltdown of South America's largest economy.

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See also:

16 Mar 01 | Americas
Brazil fears oil disaster
29 Dec 00 | Business
Brazil approves last-minute budget
09 Feb 99 | The Economy
Brazil debt talks reach crisis point
08 Mar 99 | The Economy
IMF to approve Brazil loan
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