Brazil Keeps It Real

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BRASILIA, Brazil: President Enrique Cardoso got it right Monday: Now, he said, "we are more dependent on ourselves." Brazil's currency is at the mercy of the markets after the central bank made its free-float policy permanent Monday. So far the real is hanging tough, down an acceptable 24 percent since Thursday (many expected worse) and the decision continued to get approbation from abroad Monday as European markets rose on the news. Wall Street is expected to do well too on Tuesday. This week, Brazil gets its first and best chance to justify that confidence.

The country's congress will vote this week on a strict fiscal austerity plan designed to balance the budget and inspire confidence in Brazil's economy. Cardoso promised passage to the IMF last year in exchange for $41 billion in credit, but has not yet been able to get past his spending-addicted government. Now he has a more urgent political case. If Brazil is forced to continue raising interest rates to support the real, it will prolong its current recession indefinitely. If the real continues to fall, Cardoso's legacy -- his victory over Brazil's hyperinflation -- will evaporate, and the country's recent economic progress with it. The best solution is budgetary discipline -- even more urgent after last week's costly support effort -- to convince investors (and the rest of Latin America) that the real is viable on its own merits. If they blow this one, Brazil indeed has no one but itself to blame.