Brazil’s Fraga Says Real May Have Hit Low Point

Brazil’s real currency may have hit its low point against the dollar, but the market could yet be affected by upcoming 2002 presidential elections, Central Bank President Arminio Fraga said.

In an interview with Rio de Janeiro’s daily O Globo, Fraga also said a solution to Argentina’s financial crisis is “not easy,” although Latin America’s largest economy is “distancing itself from Argentine [financial] risk.”

Brazil’s real currency has fallen sharply in recent months, in large part due to concerns over the situation in Argentina, which is now in its fourth year of recession. But last week Brazil’s currency gained against the dollar despite the concerns.

Argentina’s government last week announced a plan to offer to swap billions of dollars in bonds for lower-interest debt backed by tax revenues. There were also measures to boost consumer spending.

Asked if the real had seen its low point--it has fallen about 60% since a January 1999 devaluation--Fraga said: “It could be. Some [investors] may lose money.”

Despite Argentine contagion on Brazil’s economy this year, higher rates and global economic slowdown, Fraga said that the economy was likely to grow 2% this year. At the beginning of 2001, growth was expected to reach 5%.

Fraga said weakness on Brazil’s foreign accounts could be helped by stronger exports. He predicted a trade surplus of $5 billion next year.