## Press Release: IMF Approves US$30.4 Billion Stand-By Credit for Brazil

_IMF News, September 6, 2002_

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## Bibliographic details
- Published: September 6, 2002

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### Approval and disbursement structure
- IMF approved a stand-by credit totaling US$30.4 billion.
- Immediate drawing: up to SDR 2.28 billion (about US$3 billion).
- Second drawing: up to SDR 2.28 billion (about US$3 billion) upon completion of the first review (to be scheduled before year-end 2002).
- Remainder of the credit to be made available in four tranches through 2003, following completion of reviews and observance of relevant performance criteria.
- The current stand-by credit replaces a 15-month stand-by arrangement approved on September 14, 2001 (Press Release No. 01/38).

### Context and rationale (summary of Managing Director Horst Köhler’s remarks)
- Brazil implemented strong and consistent macroeconomic policies in recent years that improved fundamentals, including increases in the public sector primary surplus, strengthened fiscal institutions, transition to a floating exchange rate regime, and inflation targeting.
- Recent pressures: uncertain international environment, concerns about economic policies ahead of the upcoming presidential elections, depreciation of the exchange rate, increased ratio of debt to GDP, slower economic growth in recent months.
- Authorities’ response: announced in June an increased primary surplus target for 2002-2003 and maintained a firm monetary policy.
- The new Fund-supported program underpins a medium-term macroeconomic framework covering the period through December 2003 and is expected to help Brazil progressively regain market access as the next government builds on progress.

### Fiscal targets and debt dynamics
- Program fiscal targets:
  - Primary fiscal surplus of 3.88 percent of GDP in 2002.
  - Public sector primary surplus target of 3.75 percent of GDP in 2003.
  - Minimum consolidated public sector primary surplus of 3.75 percent of GDP during 2003-05.
- Commitment in budgetary guidelines law for 2004-05: no less than 3.75 percent of GDP.
- Fiscal targets will be reassessed during quarterly program reviews due to sensitivity of debt dynamics to the real exchange rate, real GDP growth, and real interest rates.
- Achievement of these targets expected to stabilize public debt dynamics and lower the debt ratio over the medium term.

### Monetary policy and inflation objectives
- Monetary policy will continue to be set in a forward-looking manner to ensure inflation converges to the official target of 4 percent with a band of 2½ percentage points on either side for end-2003.
- A regular exchange of views about the evolution of monetary policy will be maintained between IMF staff and the authorities.
- Procedure for consultation with IMF staff and the Executive Board if inflation deviates from the band limits as specified in the Technical Memorandum of Understanding.

### External sector and reserves policy
- Program floor on net international reserves (NIR): US$5 billion.
- The NIR floor is US$10 billion below the floor of the previous program, to give room for maneuver in reducing exchange rate volatility.
- Authorities will seek to reduce public sector foreign exchange exposure as market conditions allow.
- Higher trade surpluses are helping reduce Brazil's financing requirement.

### Structural reform measures
- Authorities committed to extending structural reform agenda; reforms to be mutually agreed and phased in during the program period.
- Fiscal/tax measures:
  - Provisional Measure of August 29 converting the cascading federal tax on gross revenue known as "Programa de Integração Social" or Social Integration Program (PIS) into a value added-type tax in a revenue neutral-manner; effective as of December 1, 2002.
  - Broader reforms aimed at increasing tax efficiency and reducing public expenditure rigidities.
- Pension and public employment reforms:
  - Progress expected on pension reform issues, including legal basis for creation of complementary pension funds for civil servants on a defined contribution basis and defining the careers for which civil servants can be hired under the private-sector social security regime.
- Strengthening of financial supervision and paving the way for strengthened Central Bank legislation are among other important program elements.

### Background on market conditions and program objectives
- Financial variables under intense pressure in recent weeks due to market concerns about policies under the new government to take office in January 2003.
- Earlier 2001 pressures (September-October 2001) linked to global risk aversion following September 11; conditions had reversed by early 2002 before reemergence of pressures by May 2002.
- Announcement of new IMF-supported program and leading presidential candidates’ support for key elements helped improve market sentiment and stabilize financial indicators.
- Main objectives of the proposed new program:
  - Help reduce current market uncertainties and volatility.
  - Facilitate an orderly transition to the new administration.
  - Contribute toward ensuring the maintenance of sound economic policies beyond 2002.

### Key statistics and country IMF position
- Brazil is an original member of the IMF; its quota is SDR 3.04 billion (about US$4.06 billion).
- Brazil's outstanding use of IMF credit currently totals SDR 10.89 billion (about US$14.53 billion).

*Press Release No. 02/40, September 6, 2002 — International Monetary Fund*

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## References

- [Brazil and the IMF](http://www.imf.org/external/country/BRA/index.htm)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [see Press Release No. 01/38](https://www.imf.org/external/np/sec/pr/2001/pr0138.htm)
- [Technical Memorandum of Understanding](https://www.imf.org/external/np/loi/2002/bra/04/index.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr0240_