Press Release No. 05/264

Press Release: IMF First Deputy Managing Director Anne O. Krueger's Statement at the Conclusion of Her Visit to Brazil

December 1, 2005

"It is a great pleasure for me to visit Brazil after a two year absence. I am grateful to His Excellency President Luiz Inacio Lula da Silva and his colleagues for their warm hospitality during my brief visit. Our discussions were, as always, amicable and productive. I met with the President earlier today, and yesterday I met with Minister Antonio Palocci and Central Bank President Henrique Mereilles and their colleagues.

"The progress the Brazilian economy has made since my last visit is impressive. By its firm adherence to prudent macroeconomic policies and its commitment to the ongoing program of structural reforms, President Lula's administration has laid the basis for a sustained recovery in growth with low inflation. The benefits of these policies are beginning to show. In 2004, real GDP grew by 5 percent, one of the highest rates in the last ten years and a result of strong export performance, a pickup in domestic demand, and rising wages and employment. In spite of short-term fluctuations, there is every reason to be confident about the outlook for 2005-2006, providing current policies are maintained.

"Market confidence in the government's economic policies has been reflected in much improved risk indicators. The inflation rate is declining, as are domestic interest rates: these are now back to, or below, the levels that prevailed before the market turbulence of 2002. And the government has already done much to reduce public debt and reliance on public borrowing, so helping to make Brazil less vulnerable to adverse shocks or shifts in market sentiment—though, as the government recognizes, there is scope to do still more.

"The government has also made progress with its poverty reduction agenda. The flagship Bolsa Familia program has been strengthened, and it is expected to achieve its goal of helping to improve the living standards of eleven million families by the end of next year. Clear evidence of poverty reduction was provided by the recent household survey covering the period 2002-2004. Sustained growth, lower inflation, higher formal employment and the expansion of social programs are enabling Brazil to reduce income inequality and to make progress towards achieving the Millennium Development Goals.

"The discussions during my visit have focused on the challenges that lie ahead for Brazil—and indeed, for Latin America as a whole—as the government seeks to harness the benefits of globalization for all its citizens. Macroeconomic stability remains essential for the sustained and more rapid growth that will make possible the further reduction of poverty. Structural reforms will help both in reducing vulnerability to shocks and in raising the growth potential of the economy.

"Looking ahead, the key priorities for reform include efforts to improve the private investment climate further; to raise the quality and efficiency of public spending; to make the tax structure less distorting; to strengthen social programs; and to increase the efficiency of the financial system. Along with the continuing commitment to sound macroeconomic policies, these reforms will contribute greatly to making Brazil an ever more competitive and open economy.

"The IMF will continue to support the Brazilian government's reform efforts and its commitment to macroeconomic stability and it will provide expertise as appropriate to help develop the country's vast economic potential and improve the living standards of the population, particularly the poor."