World Bank prepares aid package for Brazil

WASHINGTON (Bloomberg): The World Bank said it prepared to contribute to a big international aid package for Brazil without increasing its capital market borrowing this year, the bank's treasurer said Thursday.

Gary Perlin said at least some of the US$6 billion the World Bank once earmarked for Russia could be redirected elsewhere, such as to Latin American countries -- in what could be a blow to Russian efforts to get international lenders to resume a loan program suspended in August.

Perlin said he expected the World Bank to tap investors for about $20 billion in the fiscal year that began July 1, echoing comments he made two months ago.

"The number doesn't change -- though maybe the level of uncertainty around it is a little bit higher," Perlin told Bloomberg. "That doesn't mean we should be more confident about it. We just don't have a reason to change it."

His comments came less than two weeks after World Bank President James Wolfensohn warned that if the bank continues to be called on to help stabilize economies, it won't be able to lend as much to long-term development projects, its primary mission.

This week, Wolfensohn went a step further and said the bank has begun to ask member governments whether they want it to increase its capital.

With the International Monetary Fund strapped for cash, the World Bank has played an increasing role in bailouts to heavily indebted nations. The bank pledged a record $28.6 billion in loans last year, up 50 percent from a year earlier. Disbursements rose 28 percent in the year to $25.5 billion, with almost 40 percent going toward financial rescues.

"It's the sharp step up in net lending that took place first in Asia and now could happen elsewhere that suggests that it may be necessary -- if we were to think about our businesses differently -- to deal with that constraint," Perlin said.

Latin America

"Elsewhere" means Latin America, for now at least. The IMF, World Bank and the Inter-American Development Bank have said they're in talks to lend money to Brazil to shore up investor confidence in Latin America's largest economy.

Brazil is struggling to stop a flight of capital from the country and defend its currency, the real. Its foreign currency reserves have fallen below $48 billion from $75 billion in mid- August. Investors fret that Brazil could devalue its currency to finance the budget deficit amid a global credit crunch.

Since Russia's IMF-led loan program fell apart after the country defaulted on its debt and allowed its currency to plunge in August, the bank might take some of the money it pledged there and offer it to Latin America, Perlin said.

Though the Russian government has pleaded with lenders to resume aid, both the IMF and the World Bank have said they need credible policies in place in Russia before money can again be loaned.

Neither the IMF, World Bank or Brazil have said exactly how much money will be lent, when it will be lent or exactly what Brazil will have to pledge in return for the money.

In Paris, IMF Managing Director Michel Camdessus said the Fund is close to approving a lending package to help Brazil defend its currency, and stands ready to support other Latin American countries.

Speaking at a breakfast with journalists in Paris, Camdessus said the IMF will announce a lending package for Latin America's largest economy "with the necessary level of funding" as soon as it puts in place a "credible" three-year plan to control its budget deficit. The plan could be presented within the next 10 days, press reports say, though approval by Brazil's Congress will take longer.