South America's Troubled Economies

New York Times

For a group that came into office pledging to make ties with Latin America a priority, the Bush administration has managed to convey the opposite impression in recent months, just as the region's economic plight has worsened. Treasury Secretary Paul O'Neill, who has contributed to the bruised relations, can help repair some of the damage this week as he travels through South America.

Before Mr. O'Neill's departure over the weekend, the administration announced that it would use $1.5 billion in Treasury funds as a bridge loan to shore up Uruguay, whose economy has been clobbered by neighboring Argentina's financial meltdown. This was a welcome departure from the administration's past opposition to such bailouts. 

Mr. O'Neill, whose diplomatic skills are more than a little shaky, was on his best behavior yesterday in Brazil. He lauded President Fernando Henrique Cardoso's economic policies. Last week Mr. O'Neill roiled Brazil's currency, the real, by saying he would be wary of supporting any new financial aid packages for South American countries for fear that the aid may end up in Swiss bank accounts. 

President Cardoso has instituted sound economic reforms since taking office in 1995. But the possibility that a leftist opposition candidate, Luiz Inácio da Silva, will win the October presidential election, coupled with Argentina's default last year of its $141 billion public debt, have left foreign banks and investors skittish about Brazil.

The resulting erosion in the real's value and a credit crunch afflicting Brazilian companies have raised fears about Brazil's ability to service its $256 billion public debt. This is more a crisis of confidence than of economic fundamentals, and the Bush administration and the International Monetary Fund can still address the former in order to prevent the latter. Brazil deserves an immediate vote of confidence, in the form of expanded I.M.F. support. Today Mr. O'Neill is in Argentina, which desperately awaits its own I.M.F. aid package. That country has mostly itself to blame, but the transitional government of Eduardo Duhalde has taken some steps to address lenders' concerns. Mr. O'Neill should push the Argentine government and the I.M.F. to come to terms soon. 

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