Brazil Economy

Abandoning a costly defense of its currency against overwhelming doubters at home and abroad, Brazil let the real float free Friday, heightening economic uncertainty here, in emerging markets and in the United States. The move is expected to plunge Brazil, the world's ninth-largest economy, deeper into recession and possibly reignite inflation. Yet the action was seen as the only way to halt a hemorrhage of money from the country.

The stakes are high for the United States if Brazil, Latin America's biggest economy, falls into recession, or worse, devalues its currency, a fact underscored by an unusual telephone call of support to Brazil's president Friday by U.S. Treasury Secretary Robert E. Rubin. In a statement to reporters, Rubin said he called President Fernando Henrique Cardoso to "express U.S.

President Fernando Collor de Mello began his second day in office Friday by announcing a drastic cutback in government spending, a temporary freeze on prices and a broad program of other measures aimed at stopping Brazil's hyperinflation. The economic package was Collor's answer to an economic crisis in which inflation has reached explosive rates of more than 70% a month. "The moment is grave," Collor declared in a televised speech to his Cabinet and congressional leaders.

Brazil's currency lost another 8.5% in value against the dollar on Monday after the central bank said it would continue to let its currency float freely on international markets. The real has now slid 32% since Wednesday. The government also imposed a sharp hike in interest rates and announced a hurry-up schedule of votes in Congress this week on deficit-cutting measures aimed at shoring up confidence at home and abroad.

World economic leaders are nearing a consensus that Latin America, especially Brazil, must be saved from an Asian-style economic collapse. That consensus crystallized Monday as the world community, led by President Clinton, made the survival of emerging markets a priority. The major industrialized nations seem ready to draw a line in the sand with Brazil out of fear that the collapse of Latin America's largest economy would be an enormous setback in the global shift toward free-market economies.

Brazil cleared another hurdle Monday on the road to economic recovery, finalizing a deal with the International Monetary Fund for a sorely needed currency infusion in exchange for more cost-cutting. The agreement, hammered out over six weeks of talks, revives a $41.5-billion rescue process that was interrupted in January when Brazil's sudden currency devaluation made the previous commitments meaningless. An initial $4.9 billion could be deposited in reserves by the IMF as early as April.

Here are some questions and answers about what's going on in Brazil and the repercussions. Q. What happened in Brazil on Wednesday? A. Gustavo Franco, head of Brazil's central bank, quit, citing personal reasons and policy differences. His replacement, Francisco Lopes, allowed the country's currency, the real, to decline about 8% against the dollar, from about 1.21 reals to the buck to 1.32. * Q. Why did they do that? A.

President Jose Sarney announced an ambitious plan Thursday to overhaul Brazil's ailing economy by giving private enterprise increased freedom and opening the door to more imported goods. Sarney signed decrees to lower import taxes, reduce official red tape for exporters and new companies, and encourage the development of advanced technology. He said the measures reflect major policy changes aimed at "the modernization of the Brazilian economy."

Inflation is down. Investment is up. Exports are growing. And Latin America is well on its way to making the 1990s a decade of solid economic expansion. Leading the charge is Chile, where a booming economy grew by an estimated 9.5% in 1992. Five other countries achieved vigorous growth rates of 6% to 8%. The big disappointment was Brazil, where Latin America's largest economy shrank last year amid an unfavorable climate of political uncertainty and inflation of more than 1,000% a year.

The International Monetary Fund and the world's wealthiest nations Friday unveiled an aid package of more than $41 billion for Brazil in a long-awaited bid to prevent financial turmoil from whipping through Latin America. The plan, which includes a $5-billion contribution from the United States, represents a departure for the IMF because it is "front-loaded," making most of the money available within months of the program's debut rather than doling it out over a period of years.