Brazil and IMF Reach Pact on Financial Aid Package

Brazil and the International Monetary Fund reached agreement Friday on a new aid package, paving the way for fresh loans from a $41.5-billion credit line to bolster reserves and shore up investor confidence.

The agreement, which revises a deal arranged in November, would pave the way for a $9.3-billion payment in exchange for additional spending cuts and tax increases. Details of the pact may not be released until early next week.

Officials from Brazil and the IMF will review the economic terms over the weekend, and the IMF is expected to urge its board to approve the agreement Monday.

Brazil needs the cash to bolster sagging foreign reserves as debt costs have soared in the wake of the nation’s currency devaluation in January.

But the cost of supporting the currency and assuring international aid will be a deeper recession in Latin America’s biggest economy. The government on Thursday raised short-term interest rates to 45% under IMF prodding to contain inflation, which raced to a 32-month high of 1.4% in February.

Brazil’s currency, the real, rallied Friday on expectations the aid payment will boost confidence. The real closed at 1.98 to the dollar, up from 2.07 on Thursday.

Bond yields also pulled back. Brazil’s main stock index eased 0.5% to 9,465, but it has soared since the devaluation.

The IMF agreement would rewrite the earlier $41.5-billion deal. The growth, inflation and budget targets in that plan were rendered obsolete by the devaluation the aid was intended to forestall.