Krugman retracts slur against Soros, Brazil central banker

Prominent Massachusetts Institute of Technology economist Paul Krugman has been forced to withdraw allegations billionaire speculator George Soros traded on inside information obtained from the president of Brazil's central bank, Arminio Fraga.

In an article published in the Internet magazine Slate, Mr Krugman said Mr Fraga passed over information he obtained from the Brazilian authorities to Mr Soros prior to his appointment as the bank's president.

Mr Fraga was employed as an emerging markets investment manager by Mr Soros before the February 2 announcement naming him central bank president.

In the Slate article, Mr Krugman said: 'Over the days preceding the appointment . . . wild rumours spread through the markets: Brazil was going to default on its debt, close the banks, whatever. The real dropped to barely half its value.

'During that time, it turns out, Fraga was negotiating with the government, meaning he knew that no such plan was being devised. At the same time Soros was buying up large quantities of Brazilian debt at deep discounts.

'When the weekend passed, the real recovered sharply, partly because Soros was able to squeeze those who had sold Brazilian debt short. Other hedge funds are, shall we say, a bit upset over all this.' In a strongly worded response sent to Slate, Mr Fraga said: 'His accusation is false. I did meet with senior government officials that Wednesday [January 27], but I was not offered any government job, not the least the central bank presidency.

'I did not have access to any privileged information either. On Sunday I did get the invitation, which I was honoured to accept.' Sources indicated Mr Fraga treated the Slate allegations so seriously he sought legal advice, forcing Mr Krugman to publish a 'formal statement'.

Mr Krugman said: 'Everything I now know indicates that Arminio Fraga has behaved entirely properly over the past several weeks. He has done nothing that should create distrust.

'I have no direct knowledge about market activity during the run up to Fraga's appointment. I was given an account of that activity by several usually reliable sources, but cannot document what they said is true.'