News Brief No. 01/30

News Brief: IMF Completes Seventh Review Under the Stand-by Arrangement for Brazil

March 28, 2001

The Executive Board of the International Monetary Fund (IMF) completed the seventh review under the Stand-by Arrangement for Brazil, approved on December 2, 1998, for SDR 13.02 billion (about US$16.5 billion). As a result, Brazil will be able to draw, if needed, up to SDR 217 million (about US$275 million) from the IMF, in addition to SDR 1.7 billion (about US$2.1 billion) that remain available from last year.

In commenting on the Executive Board's discussion of the review, Stanley Fischer, First Deputy Managing Director, made the following statement:

"The Brazilian economy has continued to perform strongly, as evidenced by real GDP growth of over 4 percent last year, the continued drop of unemployment, and the decline of inflation in line with the government target. These favorable developments owe much to the skillful and firm conduct of macroeconomic policies by the authorities, which, together with structural reform, have substantially strengthened the ability of the Brazilian economy to withstand international turbulence. Further progress was made in fiscal adjustment in 2000, with the primary surplus of the consolidated public sector rising to 3.5 percent of GDP, and the borrowing requirement (PSBR) declining to its lowest level in five years. The cautious and flexible conduct of monetary policy, within the inflation targeting framework established in 1999, has been instrumental in strengthening credibility, and securing a sustained decline in inflationary expectations.

"The government's economic policy framework for 2001, appropriately aims at consolidating and furthering these macroeconomic achievements, while advancing the pending elements of the structural reform agenda. Further progress in these areas will be essential to ensure continued rapid growth and will contribute to limit uncertainty and volatility in the future.

"The maintenance of substantial primary surpluses of the consolidated public sector in 2001 and beyond is necessary to achieve further gradual declines of the PSBR and of the net public debt relative to GDP. Continued caution in the conduct of monetary policy will be required to safeguard the attainment of the inflation target of 4 percent for this year.

"The Fund supports Brazil's structural reform agenda, as recently outlined by President Cardoso, including, in particular, its emphasis on strengthening social spending, reforming indirect taxes, and further improving the social security system. Executive Directors also welcomed government proposals for strengthening the legal basis for monetary policy, continuing to improve bank regulation and supervision, and consolidating and streamlining the regulatory framework and supervision of the capital markets. Directors also looked forward to the passage of pending draft legislation on corporate governance and bankruptcy, and encouraged the authorities to move ahead with the planned privatization of the remaining federalized state banks.

"In view of the current uncertainties in the international environment, the authorities are encouraged to continue to implement their reform agenda with determination and to adjust their macroeconomic policy stance as needed," Mr. Fischer said.