Brazil will today begin the tough task of winning back international confidence after sharp devaluations scared off investors with stakes in Latin America's biggest economy.
Brazil is expected to win a vote of confidence from the International Monetary Fund (IMF) this week, with the government and the lending agency agreeing on new economic goals. IMF and Brazilian officials worked over the weekend to complete a review of an IMF-backed programme which would free up some $9 billion in bail-out funds. The money is a second disbursement of a $41.5 billion package assembled late last year.
The IMF and world governments are worried that a full-fledged crisis in Brazil would slow global economic growth and drag the rest of Latin America into a deep recession.
Local media predicted the IMF would announce the new targets once Brazil's Central Bank president-designate Mr Arminio Fraga takes over the bank.
Mr Fraga, a former top-aide to international financier Mr George Soros, was approved by the Senate's Economic Affairs Committee on Friday. Once Mr Fraga is sworn in, he faces the task of mapping out a new foreign exchange policy, part of which has been under discussion with the IMF.
"Mr Fraga may have won his battle on Friday, but he must still convince the country and investors that he has a workable agenda to ride out a severe storm," wrote Ms Miriam Leitao, a columnist for O Globo. Brazil's now free-floating currency, the real, has lost 41 per cent of its value since the government was forced to devalue in mid-January in a relentless wave of capital flight.
The Central Bank last week began intervening in the local currency market to support the real, but the currency refused to recover. Investors this week will watch out for hints on how Mr Fraga manages to boost the tattered currency.
His former boss Mr Soros said he now believes that Brazil's currency had fallen too far.
"The real's overvaluation has been solved and the currency is now undervalued. If there was sufficient international credit available, the problem would have been solved by now," Mr Soros was quoted as saying in an interview given to Argentina's Clarin newspaper.
The interview was published simultaneously in Sunday's edition of the Brazilian daily Folha de Sao Paulo.
The University of Sao Paulo's Economic Research Institute will publish on Thursday Sao Paulo's inflation index for February. Experts project inflation at about 1.5 per cent after prices rose 0.75 per cent in January.
