Brazil’s Net Dollar Outflows Hit 3-Year High

Brazil’s net dollar outflows rose to their highest level in more than three years in June as foreign banks reduced lending to Brazilian companies.

Many foreign banks have stopped providing loans because of concerns about the outcome of October presidential elections and speculation that the government may default on some of its $250-billion debt.

Net dollar outflows from financial operations in June were $4.2 billion, compared with a previous record of $6.7 billion in January 1999 during the devaluation of the country’s currency, the real, according to central bank data.

Financial operations include loans, debt service payments and the repatriation of corporate profits.

During the last four months, foreign banks have reduced credit lines to Brazil to about $5.7 billion from $10.8 billion, analysts say.

The credit crunch has added pressure on the real, which has lost about 24% of its value against the dollar this year and currently trades at about 3.01 per dollar.

On Sunday, Treasury Secretary Paul O’Neill arrived in Brazil, beginning a four-day regional tour of South American countries seeking more consistent U.S. support for plans to repair their ailing economies.

High on the agenda will be discussions about a fiscal bailout package Brazilian officials want from the International Monetary Fund in order to avoid a debt crisis and assuage jittery financial markets.

O’Neill was criticized last week after he suggested that aid money for the South American countries might be diverted to Swiss bank accounts and reiterated his wariness about extending big rescue packages to heavily indebted countries such as Brazil.

Investors, thinking O’Neill meant Brazil wouldn’t obtain key U.S. support needed for an IMF deal, dumped the country’s currency and bonds.