U.S., Allies Consult On Brazil
President Clinton said Wednesday the United States has consulted with allies about the economic crisis in Brazil and he hopes the problem "will be resolved in a satisfactory way."
Mr. Clinton noted that Latin America is the fastest-growing market for American goods and services and that Brazil is the largest country in Latin America.
He spoke with reporters in the Cabinet Room on Wednesday morning as the U.S. stock market plunged after the abrupt resignation of Brazil's central bank chief and the subsequent devaluation of its currency.
"We are monitoring developments closely," the president said at the opening of a meeting with labor leaders to preview his State of the Union address Tuesday. He said U.S. officials have consulted with key officials in Brazil, the G-7 organization of wealthy industrial nations, other countries, and the International Monetary Fund.
In a statement aimed at calming economic anxieties, Mr. Clinton said: "We have a strong interest in seeing Brazil, with whom we have worked on so many important things around the world, carry forward with its economic reform plan and succeed. And we certainly hope that they will."
He said the United States had worked hard to keep the financial crisis in Asia from spreading to Brazil, noting the high stakes for the U.S. economy in Latin America.
"Obviously we hope that the situation will be resolved in a satisfactory way not only for the people of Brazil but for all of the people in the Americas that want to continue to enjoy the good progress that all of us have enjoyed in the last several years," Mr. Clinton said. "And we're working to that end and we'll continue to do so."
Mr. Clinton commented a few hours after Treasury Secretary Robert Rubin in an interview listed Brazil as among the chief concerns while also pointing to the economic mess in Russia and Japan's continuing struggles to right its own economy.
Rubin, who met with reporters Tuesday before the latest crisis in Brazil, said hard work remained to be done to reform the global financial system.
"People have looked for magic wands and quick answers and there are no magic wands and there are no quick answers," Rubin said.
Speaking about Brazil on Tuesday, he refused to discuss what the United States and other rich nations would do if the $41.5 billion rescue package put together by the International Monetary Fund last November begins to unravel.
The international support was provided to Brazil under IMF terms that required Brazilian President Fernando Henrique Cardoso to impose an economic austerity program, something he has had trouble winning political backing to implement.
"The markets are worried that what has already spread to Brazil from elsewhere could spread from Brazil to other countries in Latin America including Mexico, a major trading partner," said Irwin Kellner, chief economist at CBS.MarkeWatch.com and Weller professor of economics at Hofstra University.
Latin America represents about 20 percent of U.S. exports and Brazil comprises about 45 percent of Latin America's economic output. Brazil accounts for a little more than 2 percent of all U.S. exports.
"If Brazil goes down and takes Argentina and Mexico with it, you could have another Federal Reserve easing of interest rates, not so much because the U.S. economy needs it but because the Fed is acting as the world's central banker," said M. Cary Leahey, managing director and U.S. economist at Primark Decision Economics.
"The worry is that you could get a contagion effect and a full-scale run on currencies with possible devaluations in other Latin American nations," said Leahey. "You'd have a tremendous flight to quality because nobody would want to hold the assets since they know they could drop 20 percent tomorrow."