That’s got foreign investors and traders worried: this year the real has tumbled, the stock market has fallen and concerns about Brazilian debt levels have risen. Hoping to stem a “wave of anxiety,” Central Bank governor Arminio Fraga last week tapped a $10 billion line of credit from the IMF. He spoke with NEWSWEEK’s Richard Ernsberger Jr. Excerpts:

ERNSBERGER: Your Finance minister, Pedro Milan, said last week that investor fears were “flagrantly exaggerated.” Yet you went to the IMF to put together a confidence-building package. Why?

FRAGA: There is no contradiction. We felt the fears were exaggerated, and perhaps became more exaggerated [recently], and so we had to respond. This is the nature of markets and situations like the one we’re facing, in which a lot depends on expectations about the future of Brazil after President [Fernando Henrique] Cardoso’s term ends. We felt there were things we could do, and we did them.

Was it your idea to go to Washington, or the IMF’s?

I went to Washington because I’m chairing a group that is reviewing a department of the International Monetary Fund. While I was there, the [financial] situation became more difficult, and on my last day there, Wednesday, I approached the IMF management with the idea of doing some things to help stabilize the [market]. I didn’t go there because of this, but it was a good thing that I was there.

Why has the real fallen so significantly this year–about 15 percent?

The currency in these situations acts like an asset price: when people get nervous, they sell. So stocks went down, bonds went down and the currency went down. It all reflects the same underlying factor–anxiety about the future.

Has Argentina’s crisis, its debt default, affected investor perception of Brazil?

I’d say that most of the action in recent weeks was driven by our own internal dynamics. Of course, having an important trading partner who’s doing very badly doesn’t help.

Your debt level is about 55 percent of gross domestic product. Is that too high?

That is manageable with [sound] policies. The United States, for instance, has a higher debt-to-GDP ratio, and no one worries about it. Why? Because you’ve been stable and you’ve been growing and you can see that this is something that over a long period of time can easily be dealt with. What we have here is a fear that our train will derail rather than a problem with the size [of the government debt]. The size [about $275 billion] is meaningful but it’s by no means unmanageable; on the contrary, I feel very strongly that if our current policy stance is maintained, our debt-to-GDP will decline over time.

Some analysts say that your interest rates have been too high for too long and are inhibiting growth. What is your response?

From about 1994 to 1998, interest rates, if you subtract inflation, were about 20 percent. That is, of course, very high. At the end of 1998 and the beginning of 1999, Brazil went through a massive fiscal adjustment–and by that I mean a deficit-reduction program. Brazil floated its exchange rate, which was overvalued. And also during the mid-1990s Brazil addressed its banking system. In response, rates dropped to about 10 percent in real terms, and they were declining up until early in 2001. We were then hit by a series of shocks, including Argentina’s collapse, the global slowdown, our own version of California’s power crisis and now these election anxieties. As soon as the weather clears, I expect us to get back to a path of declining interest rates.

You seem optimistic about the future. Has Brazil made dramatic improvements?

Without a doubt. Ten years ago, for example, 20 percent of our school-age kids were not in school. Now, only 3 percent are not in school. Three percent is still too high, but it’s a heck of a lot better than 20. So those types of things are happening, and it’s important that, in these moments of tension, we don’t lose sight of them.

Is it important that you boost the real in the near term?

It’s important that we do it the right way, not try to do it artificially. We must keep the right policies in play; explain to people what we’re doing, so they understand all the constitutional improvements that have been put in place over the years, and build the right kind of trust. That’s what we’re doing and sometimes it takes a while for things to click. But they do.