Brazil geared for crisis but not immune - Meirelles

SAO PAULO, Aug 19 (Reuters) - Brazil has reduced its risk of contagion from a global economic crisis in recent years but it would not be immune to a serious U.S. recession, Central Bank President Henrique Meirelles told a local paper published on Sunday.

Meirelles told the O Estado de S.Paulo daily that Brazil's economy is much better positioned to weather a world credit crunch, which sent international financial markets into a tailspin on Thursday, than it had been only a few year ago.

"The Central Bank has exercised a consistent policy of building reserves and at the same time reduced exchange-indexed debt (since 2004)," said Meirelles, who took office in 2003.

Brazil's Central Bank has amassed foreign reserves of $159 billion as of Aug. 15. At the same time, the country has also essentially zeroed out its public debt linked to the dollar by swapping it in exchange for locally denominated debt.

"Previously, fluctuations in the exchange rate raised the public debt level, which bred uncertainty that in turn caused the currency to depreciate even further," Meirelles said. He was referring to the vicious circle that forced Brazil to tap the International Monetary Fund (IMF) for bridge loans more than once since 1998.

Today, when the Brazilian real BRBY, which fell sharply in the past week, loses ground to the dollar, Brazilian debt actually decreases in dollar terms, Meirelles said.

NOT INVINCIBLE

But the central bank president said that Brazil, like many other economies, would not be immune to a serious recession in the United States.

"Today, we are here discussing whether we've caught a serious flu or just the sniffles ...," he said.

Asked if central banks' attempts to inject liquidity into international money markets was a sufficient response to avert a world banking crisis brought on by the collapse of the U.S. subprime mortgage market, Meirelles said, "I can't say. It's a bit too soon."

He did warn investors, however, that it is not the role of "governments and central banks to try to influence the price of assets .... This is the competency of the markets."

Brazil's Sao Paulo Stock Exchange fell to its lowest level since April on Thursday but recovered partially on Friday.

Meirelles said that the world financial system was much more sophisticated than it was during the Asian and Russian economic crises around the turn of the century, with risk spread more evenly among investment, hedge and pension funds and not just among the commercial banks.

"A possible negative side to the extreme sophistication and diversity of some of these (financial) instruments is that they yield some unexpected results," he added.

(Reporting by Reese Ewing)