Brazil and the IMF
Camdessus Welcomes Conclusion of Talks on Brazil’s Program
Michel Camdessus, Managing Director of the International Monetary Fund (IMF), said today that he was pleased to announce that "the Brazilian authorities and an IMF team have successfully concluded negotiations on a strong three-year program of economic and financial reform. Brazil’s program first and foremost addresses the chief source of its external vulnerability, namely its chronic public sector deficit, which the country is now tackling in a serious and sustainable manner.
"The program combines a large up-front fiscal adjustment of over 3 percent of GDP with reforms of social security, public administration, public expenditure management, tax policy and revenue sharing, that will confront head-on the structural weaknesses that lie at the root of the public sector’s financial difficulties. Within this framework of structural reforms, Brazil’s 3-year fiscal program targets primary surpluses of 2.6 percent of GDP in 1999, 2.8 percent in 2000, and 3 percent in 2001. The Brazilian authorities are also committed to further opening up the economy, ensuring firm monetary discipline and macroeconomic stability, and maintaining the current exchange rate regime.
"The way is now open for the international community to provide financial support to Brazil that will enhance market confidence in the government’s economic policies and help ensure the success of the country’s program. Official creditors, multilateral and bilateral, willprovide support totaling more than US$41 billion over the next three years, roughly US$37 billion of which is available, if needed, in the next 12 months. I believe that the soundness of Brazil’s program and the authorities’ commitment to it, together with the strong support demonstrated by the official international community, provide the conditions for Brazil’s private creditors now to act to help ensure its success.
"I will be asking the IMF’s Executive Board to support the program with a three-year stand-by arrangement, augmented in the first year by the Supplemental Reserve Facility, for a total amount of SDR 13.0 billion, equivalent to about US$18 billion. Around 70 percent of these funds will be under the SRF, thus ensuring the early availability of a very significant sum.
"Mr. Wolfensohn, President of the World Bank, has assured me of his readiness to recommend to his Board provision of up to $4.5 billion in support of Brazil’s program. Similarly, Mr. Iglesias, President of the InterAmerican Development Bank (IDB), recommend to his Board an IDB support package of US$4.5 billion.
"Brazil’s program will also receive strong support from a large number of industrial countries in North America, Europe and Asia, whose governments or central banks will provide through the Bank for International Settlements (BIS) additional financing totaling approximately US$14.5 billion.
"The recent passage by the Brazilian Congress of the social security reform law is a significant and long-awaited achievement. Together with the recent submission to the Congress of a revised budget for 1999, in which every effort has been made to spare basic social programs from the expenditure cuts that fiscal discipline requires, this reassures me that Brazil will implement the rest of its program rigorously. And in turn, the success of Brazil’s efforts will greatly brighten the economic prospects of the region as a whole," Camdessus said.
IMF EXTERNAL RELATIONS DEPARTMENT