Arminio Fraga will not formally take office for more than three weeks, but he was already in the thick of talks on Tuesday with the IMF's influential deputy director Stanley Fischer and his close friend finance minister Pedro Malan.

Before Fischer leaves Brasilia Wednesday, the two sides aim to draw up currency intervention and interest rate rules following the real's devaluation, which was outside the terms of an IMF bailout deal struck in November.

The bulk of the IMF team will remain in Brasilia for two more weeks to hammer out new economic and budget targets before Brazil draws a second $9 billion chunk from its $41.5 billion credit line. Brazilian newspapers Wednesday said that Fraga, a top aide for billionaire investor George Soros, brings cohesion to the economic teamat a key junction in the IMF talks after a deep rift between Malan and Francisco Lopes, who lasted less than three weeks.

"The appointment of Arminio Fraga for the Central Bank presidency could be the cease-fire the government needed to prepare for the second half of the game," said Luis Nassif, an influential columnist for Folha de S Paulo.

According to Nassif, Lopes did not want to accept IMF demands that the Central Bank intervene to support the real and keep hiking interest rates to stem dollar outflows. Malan, he said, accepted the suggestions "passively."

Estado de S Paulo, however, called the change "inopportune" in its top editorial. "In developed countries, on which we depend for financial flows to solve the currency crisis, it would be unthinkable to change a Central Bank president every 15 days," Estado said. Estado and Folha said President Fernando Henrique Cardoso had become irritated with the division in the economic team and chose to side with Malan after the real tumbled past thepsychological level of 2 per dollar last Friday. Cardoso reportedly said that "Lopes was not an operator and could not manage the market," Estado reported.

The 42-year-old Fraga, who also helped devise foreign exchange rules at the Central Bank in 1991, is expected to bring priceless experience of working in volatile markets to the Brazilian government. He starts from a much better base than last Friday after the real firmed to 1.75 per dollar at Tuesday's close for a devaluation of 25 per cent since the government let go of its strong-currency policy three weeks ago.

The real had lost more than 40 percent against the dollar up to Friday, fueling worries of runaway inflation and a fall in the popularity of Cardoso, the man who beat inflation with the bedrock currency.

Economists say taming the inflationary pressures should be a key concern for Fraga-Malan tandem. "The real challenge now for the Central Bank, like the government as a whole, is to stop the devaluation from causing inflation to riseagain," said Mauro Schneider, chief economist at ING Bank in Sao Paulo. "There's no escape, the main thrust has to be fiscal." Brazil has promised the IMF that it will slash its budget deficit, now at 8 per cent of gross domestic product, in exchange for the credit line. The IMF's Fischer had praised the government for pushing nearly all of its three-year fiscal austerity plan through Congress, but any further signs of support from the Fund will be welcome.

"At this point anything to restore confidence is going to be well regarded and received y markets and the IMF...though it's probably a little early to expect any revision of targets. They only just got there and there's a lot to hash over," said economist Siobhan Manning at Paine Webber in New York.