SUNS  4367 Thursday 4 February 1999

Brazil: Soros economist to head Central Bank



Rio de Janeiro, Feb 2 (IPS) -- Arminio Fraga Neto, employed by the George Soros international investment company in recent years, will preside over Brazil's Central Bank replacing Francisco Lopes who has resigned, said Finance Minister Pedro Malan Tuesday.

Lopes filed a surprise resignation after only 20 days as interim president of the Central Bank - he had received Senate approval last week and was expected to take over on February 10.

Director of the Central Bank International Area, Demosthenes Madureira Pinho, will fill in provisionally until Fraga has Senate approval.

And this will not be seen before February 22, when the new legislation comes into operation, said President of the Senate and National Congress, Antonio Carlos Magalhaes, ruling out a special session to consider Fraga's candidacy at an earlier date.

But Fraga is already participating in government and negotiations with the International Monetary Fund (IMF) as Finance Ministry special advisor.

The market accepted positively the replacement of Lopes, a policy maker and professor, with Fraga, considered an "operator" with broad experience in international finance as director of the Soros Foundation.

Some entrepreneurs interpreted the change in head of the Central Bank as a recommendation coming from the IMF, as it coincided with an IMF mission visit to revise targets on the agreement signed in November.

Or at least, that was the opinion given by Alfredo Ploger, head of a Brazilian association of companies open to foreign capital.

However, Malan stressed this had been a sovereign decision and that the IMF had not even been informed of Lopes's replacement.

The decision responds to a "reorganisation" of the Central Bank's upper ranks in order to "strengthen the institution" and put into practice the new free floatation of the real, said Malan, without announcing any names of new directors.

In a Central Bank communique, the minister confirmed there will be no more changes in the exchange regime, nor "the general direction of economic policy."

Meanwhile, opposition politicians criticised the decision to appoint a man so recently employed in the Hungarian-US Soros concern. Fraga has been linked to speculatory practice seen as damaging to the country, something the critics say must be combatted.

The Soros company's speculatory activities contributed to the July 1997 collapse of the Thai baht - kicking off the crisis in southeast Asia - and Malaysia's government accused the company of pushing the currencies of this region to the brink of collapse.

"Appearances could breed doubts," stated head of the Senate, but the change "will be beneficial for the country," he added.

Magalhaes was one of the first to be informed of President Fernando Henrique Cardoso's decision last week to substitute the Central Bank president.

Lopes criticised economic authorities for failing to contain intensive speculation, which took depreciation of the real to what he sees as excessive extremes over the last two weeks, and this fault could have contributed to its rapid fall.

Fraga - who was director of the International Area of the Central Bank early this decade and also participated in an earlier devaluation, in 1992 - was mentioned as a possible member of the economic advisory council Cardoso decided to create.

The Sao Paulo stock exchange, the biggest in Latin America, fell 2.9% at opening of business Tuesday following Lopes's resignation, but the real continued to pick up on the exchange market. The dollar, which closed at 1.91 Reals Monday, stood at 1.81 Reals around midday Tuesday.

Opinions amongst market analysts vary widely. Many evaluated a second replacement of the Central Bank chairman in a time of exchange crisis as evidence of governmental hesitation and lack of direction.

Others, like Nathan Blanche, of the Tendencies consultancy, considered Fraga's appointment positive, due to his "operational capacity," an important factor when the time comes to adopt free floatation of the Real.

Lopes's brief experience at the helm of the Central Bank was marked by his failed attempt at a controlled devaluation of the Real, using a band marking floor and ceiling rates against the US dollar.

This broadened band only lasted two days, giving in to free floatation on January 15.

Furthermore, he suspended Central Bank intervention in the exchange market, allowing for a devaluation which many saw as excessive, taking the Real to 2.15 per dollar on Friday, 69% above rates prior to his leadership.