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   Summers Cancels Trip, Cites Market Situation
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Clinton Urges Economic Reform in Brazil
By Arshad Mohammed  Reuters
President Clinton urged Brazil to persist in its economic reforms Wednesday after it shook world markets by effectively devaluing its currency.

Gregg Newton/Reuters
Brazilians form a long line to get to ATMs inside a bank in Rio de Janeiro
"We have a strong interest in seeing Brazil, with whom we have worked on so many important things around the world, carry forward with its economic reform plan and succeed," Clinton told reporters. "We certainly hope that they will."

The United States fears that continued turmoil in Brazil — Latin America's largest economy — could spread to neighboring countries and ultimately hurt the U.S. economy, which exports heavily to the region.

In one sign of the situation's gravity, Clinton said U.S. officials had consulted with the Group of Seven (G7) industrialized nations, the International Monetary Fund (IMF) and Brazilian authorities about the events in Brazil.

In another, U.S. Deputy Treasury Secretary Lawrence Summers canceled a New York speech Wednesday to stay in Washington and monitor developments in the financial markets.

World stock markets were hammered by Brazil's devaluation. The Dow Jones industrial average fell nearly two percent to stand at around 9,300 in midday trading. However, U.S. Treasury bonds rallied on flight-to-quality buying.

Brazil, desperately seeking a way out of a deep financial crisis, effectively devalued its inflation-busting real currency by nearly 8 percent Wednesday after Central Bank President Gustavo Franco said he would resign.

The dollar rose by 8.6 percent against the real — an effective real devaluation of roughly 7.5 percent — immediately after the Central Bank removed a tight mini-band in which the currency had previously traded.

Brazil's foreign exchange policy has served as the anchor of the country's four-year economic recovery after decades of high inflation.

In an effort to prevent the Asian financial crisis from spreading to Brazil and dragging down Latin America, the IMF and rich industrial nations last year pledged more than $41 billion to shore up Brazil's faltering economy.

Clinton stressed the importance of Brazil to the United States, noting that it is the largest economy in Latin America, the fastest-growing market for U.S. goods and services.

"We have worked hard to keep the financial crisis in Asia ... from spreading to Brazil," the president said.

"We hope that the situation will be resolved in a satisfactory way, not only for the people of Brazil but for all of the people in the Americas," Clinton added. "We're working hard to that end and we'll continue to do so."

The financial markets have long considered the real overvalued and have feared that a devaluation might spark the kind of crisis of confidence among investors that plunged Russia and much of Asia into chaos last year.

Brazil's latest crisis began last week when a rogue state governor announced a 90-day moratorium on debt payments to the central government.

While the sums involved were small, the move raised fears that the country's crucial austerity drive could be derailed and that concern snowballed into panic by Tuesday.

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