MercoPress. South Atlantic News Agency

South America News

Crucial week for the US dollar

Market analysts expect the Federal Reserve will proceed to a further 25 percentage points cut in its basis rate this week following the strong International Monetary Fund, IMF, warning about the United States economy. The IMF report indicated that the dollar is under strong pressure from the US ballooning current account deficit and limited prospects of a economic bounce back in the short term. As a direct result of the report the US dollar last week plunged to its lowest in four months against the Euro, and lost ground to other currencies. IMF urged the Federal Reserve to stand ready to cut rates again, and highlighted the current account deficit as a key risk in the coming months. "The size of the US external current account deficit does not appear sustainable in the longer term; the deficit raises concerns that the dollar might be at risk for a sharp depreciation, particularly if productivity performance remains disappointing". With the US economy slowing down, the IMF has also expressed its doubts about White House forecasted budget surplus. US Federal Reserve has already cut its short term rates this year by 2,75, which now stand at 3,75%.

Brazilian forecasts down

Battered by domestic problems, the Argentine situation and the general slowdown of the world economy, the Brazilian economy is performing well below forecasts. The latest figures indicate the Brazilian GDP in the second quarter grew at an annual rate of 0,79%, quiet distant from the optimistic official 3%. The energy crisis with electricity rationing, an international run on the local currency "Real" which so far this year has experienced a 30% depreciation, a hike in local interest rates, and an adverse climate worldwide limiting foreign investment and trade, have forced the government to appeal to the IMF and drastically cut optimistic prospects. The IMF 15 billion US dollars contingency credit was elaborated on a 2,7, 2,8% annual growth for 2001, but local analysts don't expect GDP to increase more than 1, 1,5% by the end of the year. Financial uncertainty plus strong corruption allegations have eroded President Fernando Cardoso and his administrat