Brazil and the IMF

Country's Policy Intentions Documents

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BrazilLetter of Intent

Brasília, December 2, 2004

The following item is a Letter of Intent of the government of Brazil, which describes the policies that Brazilintends 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.

Mr. Rodrigo de Rato
Managing Director
International Monetary Fund
Washington, D.C.

Dear Mr. de Rato:

1. Brazil is enjoying the fruits of sustained sound economic policies. The recovery has been balanced and broad-based, with GDP growth exceeding 6 percent over the last four quarters, and investment rising 20 percent over the same period. Annual GDP growth in 2003 was slightly revised upward to 0.5 percent. Most importantly, this recovery has been reflected in steadily rising employment, with the generation of 1.8 million new jobs in the formal sector since January.

2. Fiscal performance remains strong and we have raised our primary surplus target to 4½ percent of GDP for 2004, partly saving higher-than-expected tax revenues and reinforcing our commitment to reducing the public debt. Our target for 2005 remains unchanged at 4¼ percent. Prudent monetary management has kept inflation on track to end the year within the target bands. For 2005, the disinflation effort will continue within the parameters set by the National Monetary Council in the middle of the year. The openness and competitiveness of the Brazilian economy have continued to improve, with strong export growth. Sound debt management has continued to strengthen the profile of our debt and we have successfully initiated our external financing plan for 2005. Taken together, this means that Brazil's vulnerability to external shocks has been further reduced.

3. The government remains committed to raise Brazil's productive potential and sustain growth into the medium term. The bankruptcy law is ready to go for a second vote by the House, the framework for private-public partnerships has progressed in the Senate, and the new income tax schedule for long-term savings is expected to be voted soon. Legal provisions aimed at subjecting the financial system to the anti-trust authority are currently being considered in Congress. We are taking measures to simplify the tax regime for small businesses, thereby reducing incentives to operate in the informal sector. We are also working on a variety of related initiatives to reduce obstacles to investment, and foster financial intermediation. Together with Fund staff, we continue to explore the scope for increasing public investment in a manner that is consistent with medium-term fiscal sustainability.

4. All relevant performance criteria were observed and the structural benchmark related to the identification of measures to streamline registration requirements for business was satisfied by a study completed in November. We therefore request the completion of the ninth review under the stand-by arrangement. 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