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Friday, 2 August, 2002, 10:30 GMT 11:30 UK
Paul O'Neill pulls foot from mouth
The Bovespa exchange in Sao Paulo, Brazil
O'Neill's comments triggered a slide on the markets


Brazil's government is building a "strong foundation" for "real economic activity" thanks to its "remarkable job of maintaining sound fiscal and monetary policies".


[The government] need to put in place policies that will ensure money... doesn't just go out of the country to Swiss bank accounts

Paul O'Neill
Sunday, 28 July 2002
That is the official verdict of US Treasury Secretary Paul O'Neill, due to head for South America - specifically Brazil and its neighbours Uruguay and Argentina - on Sunday.

Confidence like that, expressed by the power which holds the purse strings for future loans from the International Monetary Fund, ought to be reassuring.

But taken in the context of earlier statements with a rather different tone, Brazilians might be forgiven for taking them less as solace and more as spin.

Upset

Brazil, with its neighbours, is suffering from economic turmoil.


The economic team in Brazil has done a remarkable job of maintaining sound fiscal and monetary policies

Paul O'Neill
Thursday, 1 August 2002
Its currency is falling as international lenders fret about the prospect that presidential elections later this year could produce a left-of-centre leader, rather than the steady-as-you-go free marketeer that is now languishing in third place.

There is also the fallout from the meltdown in Argentina, where the peso is in freefall and the government permanently on the verge of collapse.

Meanwhile, Uruguay's banks have been closed for almost a week in the hope of avoiding the kind of panic withdrawals that helped deepen Argentina's crisis earlier this year.

Money in, money out

All in all, not a good time to be insulted by the rich neighbours from North America.

Unfortunately, that was precisely what happened.

Brazilian presidential hopeful Luis Ignacio 'Lula' da Silva
Lula, the Workers' Party candidate, scares investors
During a TV interview last Sunday, Mr O'Neill was asked about his impending trip to Brazil and the prospects for new money.

Mr O'Neill held out little hope, and then chose to explain his reasoning.

"Principally they need to put in place policies that will ensure that as specific money come, that it does some good and doesn't just go out of the country to Swiss bank accounts," he said.

The result: a run on the Brazilian real, which slid more than 5% the following day.

Foot in mouth disease

The gaffe is hardly the first time Mr O'Neill has been less than diplomatic.

US treasury secretary Paul O'Neill on a tour of Africa
Paul O'Neill also caused controversy in Africa
The White House has tended to keep him away from the subject of the ongoing stock market slump around the world, even though US treasury secretaries have traditionally tried to talk down fear, uncertainty and doubt when it shrouds Wall Street.

Part of the reason, perhaps, is his early job performance, when he repeatedly indicated that the value of the dollar was completely up to the markets - when the rest of the administration was sticking to a "strong dollar" line.

During his recent tour of Africa the rigidly free-market former head of aluminium giant Alcoa was caught again, opining that aid was no use in alleviating poverty.

More immediately, though, his recent forays into the question of corporate accountability have set teeth on edge.

The collapse of energy trader Enron, he said, was all part of "the genius of capitalism": proof that markets would do the job of disciplining the wayward, and that governments need have nothing to do with it.

See also:

02 Aug 02 | Business
30 Jul 02 | Business
29 Jul 02 | Business
29 Jul 02 | Business
03 Jul 02 | Business
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