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Gustavo Franco, Head
Of Brazil's Central Bank, Resigns

Associated Press
RIO DE JANEIRO, Brazil — The head of Brazil's central bank resigned Wednesday, one day after the president sought to calm investors by pledging the nation would honor all its foreign debt obligations.

Douglas Engle/AP
Franco confirmed his resignation for personal and professional reasons
Citing personal and "chiefly" professional reasons, Gustavo Franco said today from Brasilia, the capital, that he was leaving his post because "I feel an obvious tiredness after five years of non-stop work (in the public sector)."

"It's time to give room for new people ... to consolidate the Real Plan," Franco said.

Central Bank monetary policy director Francisco Lopes, who was named to replace Franco, said today that there would be no major change in policy. Finance Minister Pedro Malan canceled a trip to Portugal because of the economic turmoil at home.

Franco's resignation comes at a delicate time for Brazil. Investors have pulled more than $40 billion from the country since July, and reserves have plunged to about $35 billion. On Tuesday alone, $1.2 billion left the country.

The real, Brazil's currency, was off by 8 percent against the U.S. dollar in trading today.

In November, international lenders put together a $41.5 billion aid package to shore up the economy. But to get the funds, Brazil must sharply reduce its $65 billion deficit — a goal that looks ever more elusive.

Franco, who became head of the country's top monetary authority in 1997, has strongly defended high interest rates to attract foreign investors.

But that policy is increasingly under fire from businessmen and workers, who claim it strangles growth and raises unemployment.

The move follows President Fernando Henrique Cardoso's promise that debt obligations would be honored.

"The market can rest assured," Cardoso said. "We know what we will do, we know what we are doing, we will pay all our debts."

His comments, however, failed to stem losses on the Sao Paulo Stock Exchange.

The Sao Paulo exchange — Latin America's largest — closed down 7.6 percent Tuesday.

Today, the Central Bank allowed the real to devalue against the U.S. dollar by changing the "band" within which the two currencies trade. The new "wide band" is 1.20-1.32 reals to the dollar, up from 1.12-1.22.

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