Brazil and the IMF

Country's Policy Intentions Documents

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BrazilLetter of Intent

Brasília, September 8, 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. Our macroeconomic policies have laid the foundation for balanced growth and a reduction in external vulnerabilities. Growth is becoming firmly entrenched, with employment growing significantly and domestic demand picking up. Thanks to prudent monetary policy, inflation is on track to end the year within target bands despite external shocks earlier this year. Export performance remains robust. Fiscal performance continues to be strong, and the new Budget Guidelines Law maintains the primary surplus target at 4.25 percent of GDP in 2005-2007, reaffirming the governmentís commitment to reducing public debt. These policies, combined with active measures to improve the debt structure, have also substantially reduced Brazilís vulnerability to external shocks, and the country weathered recent financial market volatility well.

2. We are making rapid progress in structural reforms aimed at fostering financial intermediation and improving the investment climate. The Senate has approved a new bankruptcy law, while the Housing Initiative bill has already been signed into law. We have implemented the centralized credit rating system (Cadastro Positivo), which will enable stronger competition among banks. We foresee these three measures to have very favorable effects on lending and the cost of credit. Furthermore, significant improvements to the functioning of the judiciary are currently being considered in the Senate, and the Lower House has approved legislation to support research and innovation. The framework governing Public-Private Partnerships (PPPs) is being considered by a Senate commission. We expect these laws to be passed within the months ahead.

3. Looking forward, we remain committed to maintaining fiscal and monetary discipline, while advancing structural reforms. Within a stable macroeconomic framework, further structural reforms will raise productivity and help sustain growth into the medium term. Together with IMF staff, we are currently exploring scope to increase public investment consistent with the framework for achieving medium-term fiscal sustainability. Taking advantage of recent strong revenue growth, we have implemented a package of tax measures that will encourage long-term saving and investment.

4. All performance criteria and structural benchmarks for the Eighth Review under the Stand-By Arrangement were met. We therefore request the completion of the Eighth 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 programís objectives.

Yours sincerely,


Antônio Palocci Filho
Minister of Finance


Henrique de Campos Meirelles President of the Central
Bank of Brazil