NY Fed president endorses Brazil economic team

www.forbes.com Reuters, 01.28.03, 12:26 PM ET

WASHINGTON, Jan 28 (Reuters) - Outgoing New York Fed President William McDonough on Tuesday gave high marks to the new leaders of Brazil's economic team.

McDonough advised banks to remain in Brazil, saying he was encouraged by statements made by Brazil's new Finance Minister Antonio Palocci and central bank head Henrique Meirelles.

"The new finance minister and central bank governor are saying all the right things and are getting remarkable support from the democratically-elected president," McDonough said in a speech to the Bankers' Association for Finance and Trade.

A new government headed by a left-leaning former union leader Luiz Inacio Lula da Silva took over on Jan. 1.

The political views of Brazil's new leadership raised fears among investors that sent the real currency tumbling last year. However, investors have recently cheered a more moderate stance by Lula's top economic advisors.

Speaking at the World Economic Forum in Davos, Switzerland, Meirelles said, according to Brazilian media reports, that the government would target a surplus above 4 percent of GDP, up from the 3.75 percent goal agreed with the International Monetary Fund.

The comments were broadly welcomed by the investor community, which had worried Brazil may not produce a surplus high enough to finance the country's hefty debt-to-GDP ratio, now close to 60 percent.

On Thursday, Brazil's economic team also secured the endorsement of a top U.S. Treasury official.

"The focus on fiscal policy is very welcome," said John Taylor, the Treasury's under secretary for international affairs. "The signs are good."