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Background: Widening Worries in South America

Kwame Holman looks at the economic crisis in Uruguay and its neighboring countries Argentina and Brazil.

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  • KWAME HOLMAN:

    U.S. Treasury Secretary Paul O'Neill arrived in Brazil yesterday on a mission that coincided with South America's worst economic crisis in nearly two decades. Beyond Brazil, O'Neill's four- day tour will take him to Uruguay and Argentina, together some of the continent's hardest- hit economies. In Brazil, South America's largest economy, the financial crisis has escalated in recent months. Its currency, the real, has lost 23 percent of its value against the dollar this year, most of it in July alone.

  • MAN ON STREET (Translated):

    It's driving us all crazy. I'm terrified. Our currency just keeps going down and down.

  • WOMAN ON STREET ( Translated ):

    The situation's very bad. Wages are frozen, prices are rising. How are we going to manage?

  • KWAME HOLMAN:

    To help it through its troubles, Brazil's government has asked for an extension of a loan package from the International Monetary Fund. But with two populist candidates leading in the current presidential election campaign, IMF officials have expressed reservations about new loans.

  • THOMAS DAWSON, IMF Spokesman:

    The Brazilian authorities and the political system, they will have to come to an understanding. It is not something that we specify. It is natural that any fund program needs to have a sufficient amount of political support within any country in order to have the prospect of success. So it's not an unusual concern. It gets obviously a great deal of attention, given the importance of Brazil, given the proximity of the elections and the nervousness of the markets.

  • KWAME HOLMAN:

    The Bush Administration often has expressed opposition to financial bailouts. Just last week, Paul O'Neill voiced doubts.

  • PAUL O’NEILL:

    These are important friends and allies of the United States, and principally they need to put in place policies that will assure that as assistance money comes, that it does some good, and it doesn't just go out of the country to Swiss bank accounts.

  • KWAME HOLMAN:

    O'Neill's comments sent the real to new lows and outraged Brazilians. Some protested his arrival last night by burning an American flag. But today in Brasilia, the treasury secretary struck a different chord.

  • PAUL O’NEILL:

    Let me say, I have been continuously positive, as has President Bush, about the importance of good job growth everywhere in the world. I said in my prepared remarks that I have been coming here for a long time and have the greatest respect for the people of Brazil, and particularly what President Cardoso and his government have done during their time in office.

  • KWAME HOLMAN:

    O'Neill indicated the U.S. would support international aid for Brazil. The economic crisis rippling through South America was sparked late last year by the collapse of the Argentine economy. That country's economic meltdown led to the largest debt default in history, $141 billion, riots in the streets, and the resignation of several presidents and finance ministers. The Bush Administration initially opposed aid, but later supported an international effort.

    Argentina's crisis first spilled over to neighboring Uruguay, once considered one of the most stable South American economies. That nation has been rocked by a run on banks and a dive in consumer spending. Supermarkets and small shops were looted last week after the government shuttered banks for four days, the first bank closings in 20 years. Today, most banks reopened after the U.S. Federal Reserve provided a $1.5 billion emergency bridge loan. Economic and political turmoil continues to spread to Peru, Paraguay, and Bolivia.

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