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IMF won't find it easy to tap Brazil's cash

International Monetary Fund head Christine Lagarde and Brazilian Finance Minister Guido Mantega are seen during a press conference in Brasilia on Dec. 1, 2011.

EVARISTO SA/AFP/Getty Images

It is a proud day for Latin America's largest economy. The International Monetary Fund's chief Christine Lagarde is in Brazil to borrow money, a gratifying role reversal for a country which needed a record loan from the fund in 2002. But getting hold of some of its $350-billion (U.S.) of reserves will be hard. Like the IMF itself, Brazil is attaching conditions to its help.

Brazil can be forgiven a little smugness at having the IMF come calling with the begging bowl. Now a proud member of the BRIC club of elite emerging markets and a rising oil power, its policy-makers have a powerful incentive to help avert disaster in Europe. It's already clear that they are worried about any contagion from Europe's woes hitting their shores, as they announced this week a raft of economic measures designed to avert a slowdown, including an interest rate cut.

Despite this, Brazil isn't willing to hand over any cash yet. Instead the IMF chief got a bland repetition of Brazil's position that it was willing to contribute more in principle, followed by a list of caveats.

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Brazil is understandably insisting on more self-help from Europe, including stronger action from the European Central Bank. Brazil's per capita income is only around one-third that in the euro zone, according to the Center for Economic and Policy Research, so its leaders are still wary about any domestic political backlash from bailing out far wealthier countries. Brasilia also wants more voting power at the fund. This has been boosted by half in recent years to just over 2 per cent, which the country's politicians reckon has not kept pace with Brazil's rising international standing. Finally, Brazil won't want to make any deals without its BRIC partners – China, Russia and India.

And if the cheque finally lands, IMF officials may be disappointed by its size. The nation's first and only loan to the fund in June, 2009, was a meagre $10-billion. Brazilian leaders view foreign exchange reserves as a hard-won insurance policy and are likely to be reluctant to part with much of it. That means Brazil is unlikely to be more than a bit player in any euro zone bailout.

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