SOUTH America's two largest economies aren't yet dancing the samba. Times are still hard in Brazil and Argentina. But recent news and statistics hint that the economic beat could be picking up.In Argentina, inflation has come down significantly. It was 2.6 percent in July. That's a month-to-month rate, not an annual rate. Nonetheless, it is the lowest since President Carlos Saul Menem took office in July 1989. Economists say prices may rise only 1.5 percent this month. Further, Argentina came to an agreement on an economic-reform package with the International Monetary Fund [IMF] in late June. As a result, it has begun to receive part of a $1 billion standby loan from this powerful multilateral institution. In Brazil, the government is finally about to discuss its $53 billion debt to private foreign banks. A first meeting has been set for Aug. 21 in New York. Last week, Economy Minister Marcilio Marques Moreira announced that most of Brazil's private creditor banks had approved an agreement forged in June involving payment of $8 billion worth of interest arrears. While Brazilian inflation is still high, at 13.22 percent for the month of July, the government is working to build confidence in its economic policy. Mr. Moreira returned some products to price controls last week and said he will tighten monetary policy. Both countries experienced fast economic growth in the 1970s, becoming important markets for United States exports. However, hit by higher energy prices and the debt crisis, they spent most of the last decade trying to restore better times. Inflation, bloated government, and economic instability have remained obstacles to progress. Now government officials are slowly beginning to attack the causes of these problems. "We are trying to achieve several goals, which isn't easy," Mr. Moreira said last Friday. Both countries are keen on earning US help in solving their problems by carrying out tough domestic economic reforms. "When I say we will administer a medium-term program, [the IMF reform program], when I say we will bring together the resources needed to sit down with the commercial banks, well, this is the same as saying we will probably use the framework of the [US-proposed third-world debt reduction] Brady Plan," Argentina's economy minister, Domingo Cavallo, told the press recently. Brazil's economy minister this month began the crucial process of changing the country's entire tax and revenue-sharing system. "Ninety percent of the 1992 [federal] budget has already been allocated, and 10 percent is left over," says Joao Geraldo Piquet Carneiro, a political-risk analyst in Brasilia. "We need to invest in electric energy and in the highway system to improve public employees' wages. You can't do any of this with 10 percent." Mr. Piquet says the possibility of fiscal reform happening soon is strong, "because the situation is so dramatic." Federal spending in Brazil has long been a prime cause of inflation. In the last two years, officials kept the federal deficit down by creating special taxes, keeping government wages low, and putting off debts; but this cannot continue, Piquet says. Reforms, which would include shifting revenue bases away from large sales and payroll taxes toward the more progressive income and capital-gains taxes, need congressional approval and support from Brazil's state governments. The government also moved to restore domestic confidence in its policies with a decision July 30 to begin returning the currency it blocked in March 1990, a month earlier than planned. Frozen bank deposits under $500 will be available starting today. Officials expect the beneficiaries to keep most of their money in the bank, instead of spending it. Economists and other analysts say that the 1990 freeze not only failed to stabilize the economy but set many Brazilians against the government of president Fe rnando Collor de Mello. Confidence is also key to foreign investment, sorely needed to fuel growth and create jobs for a growing population. Last week a US trade mission headed by Vice President Dan Quayle visited Brazil, sparking a frank bilateral dialogue. The Americans told the Brazilians they must move to protect international patents before they can expect increased US business. "The part [of Latin America] that is now glamorous is in Mexico, Chile, [and] to some extent in Venezuela and Colombia. Brazil is still sort of off the map for foreign investment interests," says William Meissner, a partner in the Rio de Janeiro law firm of Stroeter, Trench, & Veirano. "Once Brazil turns around ... to grow 5 percent a year, it will grow one Chilean economy a year, and that makes the rest of Latin America pale." Argentina's progress with inflation over the last several months is regarded as remarkable, considering its slide into hyperinflation twice in the last two years. But the country still faces fiscal challenges very similar to Brazil's, with the added difficulty of gubernatorial and congressional elections over the next two months. Until now, Mr. Cavallo has run a sound budget largely by selling off government-owned enterprises. But this strategy has its limits. "We need a [federal budget] surplus of $250 million a month," says Buenos Aires economic consultant Adalberto Rodriguez Giavarini, "and so far our best months have provided only $35 million, with the government putting off some payments." Mr. Giavarini and other analysts say the economic situation will be stable for the next month. However, they note that the IMF agreement requires extremely strict fiscal and monetary policy at the end of this year, in return for continuing loan disbursements. Also, Argentina's austral is overvalued and has begun to cause damage to the trade surplus. "Something will have to be done," says Roberto Frenkel, an economist at the Center for the Study of State and Society, adding that the government will have to increase public utility rates as well. All this could be risky for Argentina's monthly victories over inflation. Just how much freedom Mr. Cavallo will have to make adjustments depends largely on the composition of Congress after the elections. Public opinion polls do not show clear support for either the candidates of President Menem's Peronist Justicialista Party, or for those of the opposition Radical Party.