Press Release: IMF Completes Second Review of Stand-By Credit with Brazil, Approves US$4.1 Billion Disbursement

March 17, 2003

The Executive Board of the International Monetary Fund (IMF) has completed the second review of Brazil's performance under the SDR 22.8 billion (about US$31.4 billion) Stand-By Arrangement approved on September 6, 2002 (see Press Release No. 02/40). Completion of the review allows Brazil to draw the equivalent of up to SDR 3.0 billion (about US$4.1 billion), half of which is under the Supplemental Reserve Facility (SRF).

Following the Executive Board review of Brazil on March 14, 2003, Anne Krueger, First Deputy Managing Director and Acting Chair, said:

"Brazil's performance under the Stand-By Arrangement approved on September 6, 2002 has been strong, and all performance criteria have been achieved. This record, and the new administration's commitment to maintain the sound fiscal and monetary policies of recent years, have led to a consolidation of the improvements in market sentiment experienced over the last few months, with the currency recovering some of its lost value and risk spreads declining markedly.

"Nevertheless, market conditions continue to be difficult and risks remain, due in part to the uncertain global environment. The new administration is moving decisively to deal with underlying vulnerabilities, demonstrating a commitment both to sound macroeconomic policies and to its ambitious structural reform agenda. These policies illustrate the authorities' conviction that their mandate to promote growth and achieve fundamental social change will be fulfilled as confidence is fully restored. A supportive external environment will also be important.

"The higher primary fiscal surplus target of 4.25 percent of GDP established for 2003 is a strong signal of the authorities' resolve to keep the debt dynamics under control. Continued healthy primary surpluses are key to reducing the debt burden over the medium term. Maintenance of the needed surpluses would be facilitated by early action on proposed tax and pension reforms.

"The central bank has responded to increased inflation and inflation expectations proactively, tightening interest rates by 850 basis points since October. Although there are early signs that inflation is abating, the monetary authorities should remain vigilant and stand ready to act if and as needed.

"Continuation of the strong macroeconomic policies being implemented by the authorities and further progress on the structural reform agenda will lay the foundation for sustained and equitable economic growth. The government's initiatives in tax and pension reform are especially crucial. In addition, measures to improve the investment climate and to boost trade will be particularly important. The authorities' efforts to ensure more effective targeting of social spending will also help reduce poverty," Ms. Krueger said.


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