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Friday, April 30, 1999 Published at 06:42 GMT 07:42 UK


Business: The Economy

Former Brazil bank chief to testify

The former bank chief now willing to testify

By Sao Paulo correspondent Sephen Cviic

The former president of the Brazilian Central Bank, Francisco Lopes, says he is now willing to appear before a Congressional committee investigating the alleged sale of inside information to private banks.

On Monday Mr Lopes was arrested after refusing to testify under oath. He was later given bail.

In a statement made through his lawyers, Mr Lopes said he reserved the right to remain silent depending what questions were put to him.

The Congressional inquiry into the Brazilian Central Bank scandal is ploughing on relentlessly, as signs grow that Brazil's economy is now recovering.

Right to silence

Several witnesses have been heard this week and many senators think they can smell blood.

One senator said that two of the witnesses, an economist and a private consultant, had contradicted each other regarding the level of their contacts at the time of the currency devaluation in January.

What this scandal boils down to is the allegation that Central Bank officials were giving private banks advance warning of changes to exchange rate and interest rate policy.

The man at the centre of the storm is Francisco Lopes, who was sacked in February after only three weeks as Central Bank president.

Following his dramatic refusal to testify on Monday, Mr Lopes obtained a legal ruling guaranteeing him the right to silence if faced by a potentially incriminating question.

Thus forearmed, he says he is willing to testify if called.

Analysts are divided on how serious this scandal is likely to prove for President Fernando Cardoso's government.

Encouraging economy

Some say the inquiry is running out of steam and for the time being financial markets seem more interested in the fact that Brazil is emerging from its economic crisis.

On the other hand, the Congressional inquiry is taking up a good deal of legislative time and President Cardoso is having little success in pushing ahead with his plans to reform the state.

Flagging on a lack of fresh revelations, Brazil's inquiry into a currency scandal involving the Central Bank took a back seat Thursday to encouraging economic news in the country's financial markets.

Concerns that the headline-grabbing probe could taint current members of the government have weighed on markets this week after Lopes's arrest.

But worries over the inquiry were put aside after the Central Bank cut interest rates for the fourth time in two months in another sign that Latin America's biggest economy is on the path to recovery.

President Cardoso, in a speech Thursday, said Brazil was overcoming its problems faster than expected.

He said the government remained committed to a policy of fiscal austerity and declining interest rates.

Inflation, Brazil's traditional spoiler, continued an unexpected slowdown Thursday with the private Getulio Vargas foundation IGP-M index showing inflation down to 0.7% in April from 2.8% in March.

The domestic currency, the real, closed at its strongest level to the dollar in two weeks as rising foreign investment in fixed-income and stock funds sent dollars into the country.



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