MercoPress. South Atlantic News Agency

Interest rates controversy .

The controversial decision last week by the Brazilian Central Bank to leave the basic interest rate Selic unchanged at 26,5%, and the strangely unanimous release supporting it by the bank's Monetary Committee, are still reverberating in Brazilian political and business circles.

One of the apparent and first consequences has been the resignation of the Monetary Policy Director of the Central Bank, Ilan Goldfjan, a distinguished economist who had been in the bank since 2000 and was considered a crucial man in defining a successful monetary policy and in discussions with the IMF.

Central Bank president Henrique Meirelles said he understood Mr. Goldfjan "decision to return to the private sector; actually I asked him to stay on for another six months when I was named last January".

The Central Bank decision to keep rates steady came under strong flak from the powerful Sao Paulo Confederation of Industry and even from Mr. Luiz Inacio Lula da Silva's vice president José Alencar, who said he felt "disappointed" by the bank's board.

However Mr. Goldfjan on leaving the post said he "was convinced the Lula da Silva administration was in the right road to defeat inflation".

This year inflation in Brazil has been targeted at 8,5%, although in the first four months it reached 6,15%. Private analysts believe 2003 will finally end with a 12% inflation.

But two outstanding close aids of President Lula da Silva were caught red handed criticizing the Central Bank's decision.

Jose Dirceu Chief Minister of the Civil Branch during an apparently closed forum on social security reform said that "a primary budget surplus of 4,25% and interest rates beginning at 26,5% are non encouraging for economic activity", adding that "it would be ridiculous to argue to the contrary".

Sitting next to Mr. Dirceu was Jose Genoino, president of the ruling Workers Party who approved with his head every word that was said. Mr. Dirceu also referred to vicepresident Alencar's "disappointment" with the Central Bank and Senate leader Aloizio Mercadante harsh words towards the financial lobby influence in monetary policy.

When they realized that reporters were also present including a television crew, Mr. Dirceu tried to mend the situation saying that is was a "confirmation" of the complete independence of the Central Bank from any kind of "political influence", quiet contrary to what was claimed would happen, --during the campaign trail--, if Mr. Lula and the Workers Party reached government.

In an interview with a local radio Antonio Ermirio Moraes, one of the country's tycoons and possibly Brazilian industry's most respected voice said that the "financial sector is the most profitable of the country; I want a healthy banking system but let's find an equilibrium point, there's a brutal difference between banks and normal companies. If you don't need credit that's fine, but if you do, it's dramatic".

Rio do Janeiro's newspaper Jornal do Brazil revealed last Sunday that in the Commodities and Future Markets over 80 billion Reales are speculating with the high interest rates.

Dissident unions that do not respond to the ruling Workers Party have announced they will begin a national campaign to lower interest rates.

"We can't remain idle while factories are forced to close and the government insists with an economic policy that has condemned 12 million Brazilians into unemployment", indicated Paulo Pereira da Silva chairman of the Forza Sindical. Brazil proposes new FTAA calendar Brazil will be defining a "new calendar" for the Free Trade Association of the Americas, FTAA, talks, to replace the current timetable that anticipates the signing of an agreement by the end of 2005. "We're going to define a new calendar after the next FTAA trade meeting to the held in July in El Salvador", said Brazilian Deputy Minister for South American Affairs, Luiz Felipe Macedo Soares.

Mr. Macedo Soares announcement occurs just two days before the arrival in Brazil of Robert Zoellik US Trade Representative who comes with the purpose of ironing out some of the difficulties arising from the current talks.

The Brazilian official stressed that the FTAA talks haven't "advanced much so far", because they are "so ample" and "our own delays following the change of government last January" when Mr. Lula da Silva took office.

"Furthermore we want to see how we can proceed with negotiations, if the timetable is feasible. This will be considered in the FTAA Miami meeting scheduled this year and with Mr. Zoellik", stressed Mr. Macedo Soares recalling that US market access for agricultural exports, mainly from Mercosur, and the definition of "compensation mechanisms" to reduce the gap between the US and Latinamerican economies are two crucial points to be addressed.

"How can we make a union function smoothly when it's made up of 34 different countries? Even the European Union has a compensation fund", said Mr. Macedo Soares. Brazil also refuses to accept the US position of excluding agriculture of FTAA negotiations and leaving them for the more "diluted" World Trade Organization rounds.

"We can't sign any agreement that leaves agriculture out. It would be a terrible disadvantage for Brazilian economic development. I'd say a senseless attitude", indicated Mr. Macedo Soares.