News Brief: IMF Completes Brazil Fifth Review

May 31, 2000

The Executive Board of the International Monetary Fund (IMF) today completed the fifth review under the Stand-By credit for Brazil. As a result, Brazil will be able to draw, if needed, up to the equivalent of SDR 814.05 million (about US$1,066 million) from the IMF.

In commenting on the Executive Board's discussion of the review, Stanley Fischer, First Deputy Managing Director, made the following statement:

"Executive Directors commended the authorities for the performance of the Brazilian economy under the Government's program and noted with satisfaction that developments in the Brazilian economy since the completion of the fourth review at the end of November 1999 have been better than projected under the program, and that Brazil has continued to make progress in its macroeconomic adjustment and structural reforms. In particular, Directors noted that activity is recovering at a sustained pace, unemployment continues to decline gradually and inflation is decelerating in line with targets. They also welcomed the strong expansion in export volumes in recent months.

"Directors supported the economic policy framework for 2000, which centers on continued fiscal consolidation, a monetary policy geared to securing a decline in the rate of consumer price inflation to around 6 percent during the year, and further progress in structural reform. Directors noted that the macroeconomic objectives for the year—which also include real GDP growth of about 4 percent, a further decline in the external current account deficit to around 3.5 percent of GDP, and a significant overall surplus in the balance of payments—remain achievable. In view of the more uncertain external environment, firm adherence to the policy commitments in the program was required. In this respect, Directors particularly welcomed the strong outturn in the fiscal accounts during the first few months of this year; the steps taken by the authorities to contain discretionary spending, while safeguarding and increasing the efficiency of social spending; and their commitment to keep fiscal developments under close review and take timely additional measures, if needed, to ensure compliance with the Government's program targets.

"Directors also expressed their satisfaction with the operation of the inflation targeting framework during its initial year, noting in particular that inflation remained well within the target band in 1999, and so far in 2000, is in line with the path targeted in the authorities's program.

"In the structural reform area, Directors welcomed the recent enactment of the Fiscal Responsibility Law, which strengthens the institutional framework for sustained fiscal discipline at all levels of government. They noted, however, that further progress in other structural reforms, especially of the social security system for public employees, and of indirect taxation, would be important for both efficiency and equity reasons. Directors also encouraged the Brazilian authorities to press ahead with their privatization efforts and the further liberalization of external trade", Fischer said.


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