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Friday, 9 August, 2002, 22:18 GMT 23:18 UK
Brazil's loan optimism fades
Brazilian left-winger Luiz Inacio Lula da Silva (right) and running mate Ciro Gomes
Da Silva (right) and Gomes (left) have harsh words for the government
Brazilian markets fell on Friday after a new election poll dampened the optimism sparked by a record $30bn loan from the International Monetary Fund (IMF).

A survey showed the government-backed presidential candidate Jose Serra falling further behind two left-leaning opponents, and that rattled traders.

Sadly, the Brazilian government let the economy become dependent on having to go to the IMF

Luiz Inacio Lula da Silva

"The IMF deal was fantastic, but it would be naive to think that all of our problems have suddenly been solved," said Alexandre Vasarhelyi, head of foreign exchange at ING Barings in Sao Paulo.

The IMF loan was supplemented by the offer of a further $3bn from the World Bank and the Inter-American Development Bank.

But that was not enough to prevent the Brazilian currency and shares moving lower after their strong rally the previous day.

A close election

Left-wing politicians campaigning to win Brazil's presidential elections have given their backing to the new IMF money.

Their support has been interpreted as a sign that they are keen to portray themselves as competent managers of the economy, should they win the election.

The top left-leaning candidates Luiz Inacio Lula da Silva and Jose Alencar said they would honour the loan, which requires the country's next president not to overspend.

The general election in October is expected to be close - and the prospect of a victory by Mr Da Silva of the Workers Party had made investors jittery over Brazil's debt repayments.

Correcting errors

The country has debts of $250bn and the 15-month loan agreement is intended to shore up the economy and help the transition to a new government.

However, the left-leaning presidential hopefuls also took the opportunity to criticise the current government for economic mismanagement.

"Sadly, the Brazilian government let the economy become dependent on having to go to the IMF," Mr Da Silva said.

Mr Alencar added: "No one goes to the IMF for fun. You go to the IMF to avoid bankruptcy."

They stressed that the economic model of President Fernando Henrique Cardoso, and therefore also his presidential nominee Jose Serra, had pushed Brazil to the brink of collapse.

The two candidates also promised to correct the "errors" of that model.


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