- The Washington Times - Friday, March 28, 2003

With war raging in Iraq, America's focus on Latin America, which is subdued even in peacetime, has become even sparser. But, the administration should keep the region within its periphery.
Brazil and other smaller countries recently elected new presidents who are struggling to push forward key and controversial reform bills. As the region's main locomotion for economic growth, Brazil is a critical power in the emerging market world. If the Brazilian motor begins to stall, then some of the promising momentum gained in developing countries in Latin America and beyond would be threatened.
While Brazil is being affected by the war in Iraq, recent developments demonstrate a degree of independence from these geopolitical factors. For instance, economic conditions are still closely linked to prospects for financing from the International Monetary Fund (IMF), which has approved a loan of $30 billion for Brazil. And it is the IMF where U.S. leadership should prevail to have a long-lasting impact on Brazil and beyond.
Brazil's president, Luiz Inacio "Lula" da Silva, yesterday decided to shelve his plans to propose a new law that would have given the country's Central Bank greater autonomy. Mr. da Silva's decision to delay legislation until next year is a disappointment to the market and, no doubt, to the IMF. He had exerted a considerable amount of political capital to win support for the bill, but was unable to get even his own party on board.
Hopes that the banking bill would succeed caused the JP Morgan Emerging Markets Bond Index, in which Brazil is heavily weighted, to rise by more than 1 percent in total returns Wednesday, after a rally of 19 percent since Jan. 1. But Brazilian bonds fell yesterday.
Meanwhile, in Ecuador, President Lucio Gutierrez appears to be making a relative victory in the first round of a legislative fight. Ecuador, although small, has been watched by emerging market investors since it was granted an IMF loan of $205 million last Friday. Recently, Congress approved a bill to reform that country's customs authority, by giving the internal revenue and cabinet officials an oversight role and by tightening procedures to bolster transparency. The bill falls short of Ecuador's promise to the IMF to shift customs' jurisdiction entirely to the internal revenue service, but it represents an important step toward transparency.
But, the IMF loan given to Ecuador, unlike that of Brazil, forces the country to take some tough austerity measures, without sufficient funds to pad their impact with a wider social agenda, such as greater spending on education and other key areas. The IMF is expected to be tough on Ecuador to meet agreed-to requirements in order to get loan funds. With Brazil, it is expected to be more flexible, given the country's ability to affect global markets.
The White House, through its considerable influence at the IMF, should continue to insist on funding linked to strict compliance by both nations, which, in turn, would significantly bolster the region's prospects for progress.

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