-Caveat Lector-
Wall Street, get ready for the "Latin American flu."
Ex-Brazil Bank Chief Arrested
By ALEX DUFF
.c The Associated Press
RIO DE JANEIRO, Brazil (AP) -- A scandal tarnishing Brazil's Central Bank is
undermining recent optimism that Latin America's largest economy is on the
road to recovery.
Police arrested former Central Bank president Francisco Lopes on Monday after
he refused to sign a document pledging to tell the truth at a Senate inquiry
into alleged banking irregularities.
He was later released after making a $175 bail payment, the Agencia Estado
news agency reported.
The Sao Paulo stock exchange index plunged after the arrest, closing down 2.1
percent. Traders also predicted strong losses Tuesday.
It was the first time since the founding of the institute 35 years ago that a
former president has been arrested. The bank is equivalent to the U.S.
Federal Bank.
President Fernando Henrique Cardoso late Monday expressed concern at Lopes'
stance, saying he ``neglected to do his duty,'' but moved to play down the
controversy's potential effect on the economy.
``Investors are calm like me. ... We don't need a commotion about a Senate
inquiry or two,'' Cardoso said in a televised interview. ``In the United
States, President Clinton went through various congressional inquiries and
(financial) markets did not die.
``Brazil isn't going to stop ... the government will continue governing and
Congress will continue to vote on reforms,'' he added.
Lopes, who headed the Central Bank briefly during Brazil's rocky currency
devaluation in January, was due to answer allegations that the Central Bank
gave special treatment to some banks at the time and leaked confidential
information.
But asked by a Senate committee member if he would sign the document before
giving testimony, he said he had been ``advised by my lawyers'' not to do so.
``I don't feel I can testify here as a witness because I am being accused,''
Lopes told the committee.
Senators suspect Lopes fed economic consultancy firm Macrometrica with
information on the Central Bank's next moves on interest rates and foreign
exchange while he was president. Lopes owned the firm, which gives advice to
banks, until 1995.
Their suspicions are based on documents seized at Lopes' house during a
police search earlier this month.
Lopes' refusal in the Senate to sign the document Monday -- equivalent to
refusing to swear an oath on the Bible in court -- was seen as a strategy by
Lopes' lawyers to take his case to a regular court.
Lopes was president of the Central Bank for just 15 days before being
dismissed. He had held other posts at the bank since 1995.
He was replaced on Feb. 2, without an official explanation, days after
implementing a policy allowing Brazil's currency, the real, to float freely
against the dollar.
In the two weeks after the policy was introduced, the real plunged 32 percent
against the dollar, sparking fears of a serious knock-on effect in other
countries.
But the government quickly won Congress approval of several reforms demanded
by the International Monetary Fund to implement a $41 billion aid package.
In recent weeks, fears that inflation would take hold have subsided, the real
has grown stronger and foreign investment has started to return.
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