Commentary: Brazil's reforms under threat

The corruption charges against President Fernando Collor de Mello have overhung Brazil's financial and economic prospects all summer. It was not surprising, then, that the Brazilian stock market opened slightly higher after his suspension.

Prices in the secondary market in Brazilian debt also rose in the run-up to the decision but fell yesterday, which dealers said was because people had been buying on the rumour and selling on its confirmation.

The robustness of the markets perhaps reflects relief that uncertainty is over. But more important is the removal of the threat that Brazil's state finances would spin hopelessly out of control again because the president appeared set on a programme of public spending to buy his way out of trouble.

That more than anything else would wreck the government's hard-won debt refinancing package, which has involved lengthy negotiations with the International Monetary Fund and creditor banks. Mr Collor's troubles were leading to paralysis.

The economy minister, Marcilio Marques Moreira, has already conceded that further IMF drawings are unlikely this year, raising questions about whether the agreement - under a plan devised by the US Treasury Secretary, Nicholas Brady - is in difficulty.

The vice-president, Itamar Franco, is to appoint a new cabinet, but Mr Marques Moreira has said categorically he wants to leave the government for good.

Mr Franco himself has more credibility in the markets than Mr Collor has had for many months, but the identity of Mr Marques Moreira's successor will be the key to judging whether Brazil will continue to push through reforms. With inflation approaching 23 per cent a month, there is still a risk of a replay of Brazil's all-too-regular economic disasters.