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Monday, 11 November, 2002, 13:02 GMT
IMF seeks reassurance in Brazil
Luiz Inacio Lula da Silva
Lula needs to build a close relationship with the IMF
A team from the International Monetary Fund (IMF) is due in Sao Paulo this week to make contact with president-elect Luiz Inacio Lula da Silva, and review the country's $30bn (19bn) loan package.

The talks will embody the economic transition between the outgoing government of President Fernando Henrique Cardoso - who will lead the negotiations - and the new Cabinet, the exact composition of which is still uncertain.

The president-elect, best-known by his nickname, Lula, has said he will just be "listening in" on discussions with the IMF.

But establishing a close working relationship with the fund is among Lula's top priorities, since there have been doubts over the Brazilian government's ability to remain solvent.

The IMF team is expected to recommend ways to cut Brazil's public debt, which is now about $260bn, or the equivalent of almost two-thirds of annual economic output, because of a sharp depreciation in the currency, the real.

Seeking assurance

Although Lula and his colleagues do not intend to put forward proposals of their own, markets will be on the lookout for indications of their likely attitude to long-awaited reforms.

In particular, investors want to see a commitment to a shake-up of the pension and tax systems, both seen as crucial to restore flagging government revenue.

Nervousness over the new government - the first serious left-wing administration ever elected in Brazil - has caused upheavals in Latin American financial markets in recent weeks.

Investors fear that inexperienced and in some cases radically left-wing politicians may be tempted to default on government debt, a move that could trigger a global meltdown in emerging markets.

The IMF visit will last until early on Tuesday, and will be followed by a two-week review of Brazil's policy goals.


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