Brazil Being Dragged into Debt Abyss

Brazil could help euro zone through IMF

Reuters
October 28, 2011

Brazil’s government could help euro zone nations mired in a debt crisis but would likely limit its aid to a bilateral agreement with the International Monetary Fund, a local newspaper reported on Friday.

Latin America’s largest economy does not intend to directly help boost the European Financial Stability Facility to 1 trillion euros, newspaper Valor Economico reported on Friday, without citing a source.

The government of President Dilma Rousseff is waiting for more details of the European agreement to make a decision, Valor added. Brazil would only use a slice of its international reserves if the euro zone plan is solid and effective, Valor said.

Newspaper O Estado de S. Paulo also reported that the European Union plans to send a mission to Brazil to ask the country for help in the rescue plan, which boosted global markets sharply on Thursday as investors saw the euro zone avoiding a disastrous collapse.

No date has been set for the trip, Estado said.

However the European Financial Stability Facility, through a spokesman, denied the trip was imminent and said the report was not true.

Attempts to reach Brazil’s Finance Ministry and the presidency for comment were not immediately successful.

Euro zone leaders struck a deal on Thursday to contain the currency bloc’s two-year-old debt crisis. However, they are now under pressure to finalize the details of their plan to slash Greece’s debt burden and strengthen their rescue fund.

After a summit in Brussels, governments announced an agreement under which private banks and insurers would accept 50 percent losses on their Greek debt holdings in the latest bid to cut Athens’ debt load to sustainable levels.

Brazilian officials in recent days have tiptoed around the issue of financing a European bailout. While the move would cement Brazil’s growing role as a global economic power, the country faces limitations on using its reserves to buy high-risk debt.

Earlier this year, Brazil floated a plan to buy European debt along with members of the powerhouse BRICS group of emerging markets, comprising also Russia, China, India and South Africa, but backed away after a tepid response from the group.