Brazil and the IMF

Press Release: IMF Executive Board Completes Seventh Review of Brazil's Stand-By Arrangement
June 18, 2004

Country's Policy Intentions Documents

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BrazilLetter of Intent

Brasília, June 3, 2004

The following item is a Letter of Intent of the government of Brazil, which describes the policies that Brazil intends to implement in the context of its request for financial support from the IMF. The document, which is the property of Brazil, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.

Ms. Anne O. Krueger
Acting Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Ms Krueger:

1. The economic recovery is underway. We believe our policies will help deliver 3.5 percent growth this year. Given the successful implementation of monetary policy, inflation is now in the mid-single digits, on-track to meet this year's 5.5 percent target. Retail sales are rising and consumer and business confidence indicators point to optimism. Driven by the strong performance of exports, the current account should end the year in surplus. Looking forward, real medium-term interest rates have fallen to 10-year lows in the wake of strong fiscal results and progress in other economic policy areas. The Budget Guidelines Law sent to Congress in April maintains the primary surplus target at 4.25 percent of GDP in 2005-07 and underlines the government's commitment to reducing the public debt.

2. Our reform agenda this year is broader than in 2003 and is moving forward in its multiple areas, strengthening medium-term growth prospects. Congress approved a reform of the electricity sector that will allow the sector to work on more of a market basis, and the government is now drafting implementing regulations. The law regulating public-private partnerships has been approved by the Lower House and is now under review in the Senate. The Senate is also voting on an improved bankruptcy law, which should reduce the cost of credit. The Housing Initiative bill, which lays the basis for an efficient housing credit market, will help reduce the shortage of houses and increase job opportunities. The government submitted to Congress legislation to support research and private sector innovation, which we consider a core part of a modern strategy to raise Brazil's industrial growth.

3. All performance criteria for the Seventh Review under the Stand-By Arrangement were met and the two structural benchmarks have been completed. In particular, the ruling that allows civil servants and retirees to pledge a fraction of their future incomes to repay consumer loans has been approved. A presidential decree creating investment accounts that are exempt from the bank-debit tax (CPMF) was issued on April 1. We believe this measure will play an important role in increasing savings in Brazil and fostering competition in the banking sector. Looking forward, changes introduced to strengthen the bankruptcy law in the Senate will require that it return to the Lower House for reapproval. As a result, training of judges on the new law, which is an end-June structural benchmark, will be delayed. We therefore request that the test-date for this benchmark be moved to end-December 2004.

4. In light of these considerations, we request the completion of the Seventh Review. We emphasize that we will continue to treat the arrangement as precautionary. As usual, we will maintain a close policy dialogue with the Fund and stand ready to take additional measures as appropriate to ensure the achievement of the program's objectives.

Yours sincerely,

Antônio Palocci Filho
Minister of Finance
Henrique de Campos Meirelles
President of the Central Bank of Brazil