News Brief: Camdessus Recommends Approval of Brazil’s Revised Program

IMF News, March 8, 1999

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Michel Camdessus, Managing Director of the IMF, announced his intention to recommend to the Fund’s Executive Board the approval of the revised economic program for 1999–2001 proposed by the Brazilian government.

Stand-by Arrangement approved on December 2, 1998 in an amount totaling SDR 13.0 billion (US$18.1 billion).
Package of international financial support totalling about US$41 billion.
Brazil drew SDR 3.4 billion (about US$4.6 billion) in December.
Upon Board approval, Brazil would be able to draw a further SDR 3.6 billion (about US$4.9 billion).

Strengthened fiscal adjustment.
Adoption of a new nominal anchor for monetary policy in light of the floating of the exchange rate.
Additional fiscal improvement and a firm monetary policy intended to contain the impact of the depreciation of the real on prices in the first half of 1999.
Objective to facilitate a decline of the annualized monthly rate of inflation to single digits by the end of the year.

Real GDP is now expected to decline by 3½–4 percent in 1999.
Program expected to lay the basis for a sustained recovery in 2000 and beyond as confidence recovers and external financing constraints are eased.
Current account of the balance of payments expected to improve substantially, with the deficit being nearly halved in 1999, compared with 1998, and continuing to decline in subsequent years.
Capital inflows expected to recover progressively during the year, turning the overall balance of payments into surplus during the second half of 1999.

Government committed to ensuring a steady decline of the public debt relative to GDP to a level below that targeted in the original program (46.5 percent of GDP) by the end of the program period.
Targets for the primary surplus of the public sector increased by the equivalent of about 0.5 percent of GDP per year, compared with the original program, to a range of 3–3.5 percent of GDP per year during the period 1999-2001.

Additional fiscal adjustment to be achieved through a range of revenue raising measures and expenditure cuts, most of which have already been announced by the government.
Adjustment effort concentrated at the federal level.
States and local governments expected to contribute through implementation of their debt restructuring agreements with the federal government and by complying with the requirements of the administrative reform laws.
Government committed to protecting the more vulnerable segments of society by minimizing the impact of budget cuts on programs targeted to the poor.
Government has sought financial support from the World Bank and the IDB for protecting vulnerable groups.

Central Bank intends to move as soon as feasible to an inflation targeting framework for monetary policy and is taking steps to put in place the necessary technical underpinnings.
Steps being taken to strengthen the operational autonomy of the central bank in pursuing its anti-inflation mandate.
While inflation targeting is put in place, the central bank will keep the growth of its net domestic assets within rates consistent with the target path of inflation and the projected paths of real GDP and the overall balance of payments.
Increased focus by the central bank on inflation and the monetary aggregates will require appropriate flexibility in the management of interest rates.
With decisions on interest rates announced on March 3, the central bank demonstrated its commitment to such flexibility.
Interest rates are expected to decline in the course of the year, as inflation abates, to levels significantly lower in real terms than those prevailing before the floating of the real, thus facilitating the targeted decline in the public debt relative to GDP.

Government reaffirmed commitment to wide ranging program of structural reforms in areas including social security, taxation, fiscal transparency, and the financial sector, with significant progress in most areas.
Government intends to accelerate and broaden its privatization program.

Revised Brazilian program expected to continue to receive financial support from the international community, including industrial countries, the World Bank, the IDB, and the private sector.
Brazilian authorities intend to seek, starting this week, voluntary commitments by their creditor banks to support Brazil.
Voluntary creditor support is integral to the success of the program and will be a key factor in the consideration of the program by the IMF Executive Board in late March or early April.

IMF EXTERNAL RELATIONS DEPARTMENT, Public Affairs, Media Relations — March 8, 1999