A REAL HERO.

Arminio Fraga Neto pulled the Brazilian economy back from the brink of disaster--not bad for a "poacher turned gamekeeper."

WHEN ARMINID FRAGA NETO WAS APPOINTED PRESIDENT of Brazil's Central Bank last February, opponents viii fled him as a "poacher turned gamekeeper," since he had spent his previous five years overseeing the investments of billionaire speculator George Soros, whose hedge funds are widely credited with crushing Third World currencies.

Yet Fraga is now being hailed as the "economic messiah" of Brazil's restored credibility with international investors and the world's eighth-largest economy's recent ability to beat even its most optimistic expectations.

When he took over the Central Bank, it was a mess. His predecessor, Francisco Lopes, had lasted only three weeks on the job, and the real, Brazil's currency, had lost 40% of its value and was still falling fast--as was confidence in the Brazilian economy.

In the devaluation's aftermath, nervous foreign investors pulled out billions, currency reserves plummeted and some economists predicted a deep recession and a jump in annual inflation from 2% to between 30% and 40%. President Fernando Henrique Cardoso pleaded for calm on national television after rumors circulated that he would freeze or confiscate private bank accounts, causing Brazilians to rush to withdraw their savings. A New York Times editorial questioned whether Brazil had become a "Moscow on the Amazon?"

Cardoso then telephoned the 42-year-old Princeton-trained economist at his New Jersey home, asking him to replace Lopes. "I was very surprised. I had just had dinner with the president [Cardoso] and it never crossed my mind," Fraga tells LATIN TRADE in Brasilia at his 20th-floor office overlooking a scenic view of the futuristic capital's skyline.

With Fraga at the helm, Brazil proved it was no Russia, recovering from its panicky tailspin quickly. Foreign investment is flowing back, interest rates have been cut to 19.5% without pumping up inflation and the economy is expected to shrink by just 1% in 1999.

Fraga's road show. "The turnaround was a combination of the right policy and the right reputation," says Alexandre Barros, a Brasilia-based business consultant. "Foreign investors knew Fraga as a peer rather than someone with an economics degree."

The market-savvy Fraga, determined to keep inflation in check, immediately raised interest rates to an astronomical 45% to reduce consumer demand, protect the real against other currencies and attract foreign capital.

He then went to New York, London and Paris, where he told bankers that Brazil was still "credit worthy" and foreign speculators that "they could still make some money here."

Fraga's road show made "investors understand that only in the most severe circumstances would he (Fraga) do something that was not market friendly," says Oswaldo Sandoval, senior analyst for Explorador Capital Management, a San Francisco-based hedge fund that specializes in Latin America investments.

In April, Fraga provided proof that Brazil was on the road to recovery by masterminding a global bond offering--Brazil's first in more than a year--that raised $2 billion in new money and converted another $1 billion in existing debt into new bond.

Born to a Brazilian father and an American mother in Rio de Janeiro, Fraga learned the ropes of international finance after getting his PhD at Princeton. He worked for six years as an arbitrage trader in emerging markets for the New York-based Salomon Brothers. He also found time to teach international finance at Columbia University and at the Wharton School in Philadelphia.

In 1991, he returned to Brazil as chief of operations for the Central Bank, negotiating the restructuring of Brazil's debt with foreign banks. Two years later he went to New York to run Soro's Quantum Emerging Growth Fund, which became a top performer in its class. When Fraga became Central Bank president, he took a substantial drop in pay from a job that reportedly once paid him a $25 million bonus. He now earns an annual salary of $53,000 (R8,000 reals monthly at R1.80 to US$ 1).

Perhaps with that in mind, a congressman questioned his loyalty at confirmation hearings in early February. "He implied that I hadn't really changed jobs, that I was more loyal to Mr. Soros than Brazil," Fraga said. "It was very offensive."

Fraga's work is a long way from being complete. Interest payments on the public debt are driving up the budget deficit and the Social Security deficit is expected to grow by 12% this year to $26.5 billion.

Nonetheless, Fraga says financial reforms submitted to Congress will help restore fiscal responsibility. "We have now enough funds to produce good fiscal results for the next two and a half years, but we have to go beyond that," he says. "We are no longer on red alert but on yellow alert."