The architect of Brazil's economic recovery and market-friendly fiscal policy has resigned after being caught up in a scandal.
Finance Minister Antonio Palocci sent a resignation letter last night to President Luiz Inacio Lula da Silva, who accepted his decision.
Mr Palocci faces accusations he frequented a house in Brasilia where lobbyists held parties with prostitutes, and money arrived by the suitcase, possibly for political payoffs. He denies the accusations and ever setting foot in the house.
Last week, bank records from the caretaker who placed Mr Palocci at the house were leaked from the state-owned Caixa Economica Federal bank in an apparent bid to suggest he had been paid by the opposition.
The bank's president, Jorge Mattoso, told police yesterday he personally handed the bank records over to Mr Palocci, whose ministry oversees the bank. Mr Mattoso was charged by police with violating bank secrecy laws, the government's official Agencia Brasil news agency reported
President Silva indicated former Planning and Budget Minister Guido Mantega would replace Palocci.
Mr Mantega told reporters he would stay the course on Brazil's orthodox monetary policy, aimed at promoting slow and sustainable growth by paying down debt and taming inflation. Those moves have prompted foreign investors to bet big on Brazil after they bailed out in droves four years ago.
Mr Palocci was one of the main forces behind a strategy to impose sky-high interest rates to control persistent double-digit Brazilian inflation, which has now fallen to 5.5 percent.