Fed's McDonough praises Brazil's economic team

www.forbes.com Reuters, 02.21.03, 10:31 AM ET

NEW YORK, Feb 21 (Reuters) - Federal Reserve Bank of New York President William McDonough on Friday commended Brazilian President Luiz Inacio Lula de Silva, saying the country was on the right path because of his austere fiscal policies and superb economic team. Speaking to a Latin American forum at the Columbia University business school, McDonough praised both Brazilian Finance Minister Antonio Palocci and central bank head Henrique Meirelles, as well as the government's push to increase the primary budget surplus target for 2003. Last year Brazil beat its budget surplus target set by the IMF and so far it has set a goal of 4.25 percent for this year. "Lula da Silva is giving us a wonderful example of what you have to do if you are a left-of-center politician who has just taken over one of the most important, if not the most important, country south of the Rio Grande," McDonough said. He added that, in addition to Lula's fiscal efforts, he has also taken solid steps to make voters happy by cutting defense spending to increase funding for social programs. McDonough also said Brazil, and Latin America's other economic powerhouse, Mexico, were taking the right steps to battle inflation. Brazil raised its benchmark Selic rate 100 basis points on Wednesday to 26.5 percent and curbed money supply growth in an effort to stem inflation, which economists expect to hit 12 percent this year. Mexico has tightened monetary policy three times since early December to cut inflation expectations. The New York Fed president also noted that Uruguay, whose economy has been ravaged by the fallout of neighboring Argentina's fiscal crisis and a run on its banks, "deeply deserves" the support of the international community because it is doing all it can to get out of its predicament. Copyright 2003, Reuters News Service