Brazil and the IMF

Press Release: IMF Executive Board Completes Sixth Review of Brazil's Stand-By Arrangement
March 26, 2004

Country's Policy Intentions Documents

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BrazilLetter of Intent

Brasília, March 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.

Mr. Horst Köhler
Managing Director
International Monetary Fund
Washington, D.C. 20431

Dear Mr. Köhler:

1. The macroeconomic policies and important structural reforms pursued by the government since taking office continue to bear fruit. Since the last review, indicators of financial market sentiment have consolidated earlier gains, inflation has continued to converge to government targets, and important pension and tax reforms have been passed by Congress. Prudent management of the public debt has increased maturities and improved its structure while the rebuilding of international reserves has reduced external vulnerabilities. The rebound in economic activity that started last year, combined with a strengthening of domestic demand, will result in output growth of 3.5 percent this year. Some 812,000 new jobs were created during the first year of this administration; employment growth should accelerate in 2004, accompanied by growth in real wages.

2. All performance criteria and indicative targets for the Sixth Review under the Stand-By Arrangement were met. The consolidated public sector primary surplus was 4.32 percent of estimated GDP in 2003, slightly exceeding program targets. In addition, the end-December 2003 structural benchmark to announce criteria to increase borrowing limits of state and local governments that propose self-sustaining, revenue-yielding projects in water and sanitation, has been met. In this light, we request the completion of the sixth review. We emphasize that we will continue to treat the arrangement as precautionary.

3. As you know, the program contains an adjustor on the performance criterion on the consolidated public sector primary surplus by the amount of qualifying expenditure in water and sanitation projects. For the purpose of monitoring, expenditure on such projects will be measured according to information provided by financial institutions and corroborated by the Ministry of Cities as envisaged in National Monetary Council Resolution 3153. This information will be made available on a quarterly basis no later than six weeks after the end of the quarter.

4. As usual, we will maintain a close policy dialogue with the Fund and stand ready to take additional measures, as necessary, to achieve the objectives of the program.

Yours sincerely,

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