Brazil Gets Money and Praise from IMF

    
Brazil Gets Money and Praise from IMF

    Brazil’s last agreement with the IMF is also the first between
    Lula’s administration and that Fund.
    The pact was surrounded
    by controversy given that the President’s party, had denounced
    past
    agreements with that institution. The Brazilian Finance
    Minister said the accord is Brazil’s preparation
    to leave the IMF.

    by:

    Rodolfo Espinoza


    Despite President Lula’s assurance that the agreement wouldn’t happen before December and protests from the left
    wing of the government’s own party, Brazilian Finance Minister, Antonio Palocci Filho, announced on Wednesday, October
    5, a new agreement between Brazil and the IMF (International Monetary Fund).

    The accord is just an extension of the loan the country had been granted during previous president Fernando
    Henrique Cardoso’s years. The total agreement calls for US$ 14 billion, but only US$ 6 billion represent new money. The
    remaining US$ 8 billion, which will not be used this year, are part of the US$ 30 billion from the earlier deal with that
    international organization.

    This pact—the first between Lula’s administration and the IMF—was surrounded by controversy given that the PT
    (Partido dos Trabalhadores—Workers’ Party), the President’s party, had denounced past agreements with the Fund. It was
    expected that the government wouldn’t accept additional loans from the IMF. With an eye to the PT’s own internal opposition to
    the deal, Palocci hinted that this one might be the last agreement of this government with the international institution. The
    minister believes that Brazil will not need IMF’s help to pay its foreign debt starting in 2005.

    According to Palocci, the money was taken as an "insurance policy" and will be used by the government only in case
    of an external crisis. The agreement will last for one year.

    Palocci’s announcement was made in the presence of Anne O. Krueger, First Deputy Managing Director of the
    International Monetary Fund, who is in Brazil. She said that there was no doubt that the Brazilian proposal would be approved
    by the IMF and congratulated the first year of the Lula administration. "The policies adopted by the government have
    reduced the vulnerability of the Brazilian economy," she declared.

    To calm the dissenters of the PT, the Finance Minister insisted that the "extension of the present agreement is
    Brazil’s preparation to leave the IMF, it’s the soft landing." For Palocci, the pact is a fundamental piece "of macroeconomic
    equilibrium to sustain the robust economic growth in course."

    Joaquim Levy, the head of the Secretariat of the National Treasury, said that everyone in the Lula’s government
    agreed that the new accord would further strengthen growth in Brazil. Even before the announcement of the agreement
    Brazilian authorities were insisting that the deal would be considered a preventive measure whose main objective is the promotion
    of sustainable growth in the country.

    For Guido Mantega, Minister of Planning, Budget, and Management, "today, Brazil enjoys a more comfortable
    position, is not undergoing an external financial crisis caused by capital scarcity, and reserves are growing, so this agreement can
    be made or not." Mantega said "that Brazil can proceed without the IMF at this moment."

    President Lula, who is an official visit to Africa also discounted the importance of the accord. "We don’t even need
    the US$ 8 billion at our disposal from the last agreement, which expires in December," he declared, stressing that the IMF
    must change its behavior, a point he had made before. "It is no longer necessary to demand any country to make fiscal
    adjustments," he said, "but, rather, that countries in their agreements with the IMF assume the obligation to resume growth and
    economic development. It is this policy which, in my opinion, should permeate the IMF’s conversations with any country from
    now on, even more because fiscal adjustment was a failure in the majority of countries. I think that countries need to resume
    growth, and that is the basis for any agreement whatsoever. That is, there will be no agreement that impedes the growth of our economy."

    From the Brazilian point of view, said Lula, the most important matter will be Brazil’s resumption of economic growth."
    The Brazilian President also talked about the primary surplus (revenues less expenditures, excluding interest payments), set
    in June in the Budget Guidelines Law (LDO). For Lula, this represents a typical example of a governmental decision, not a
    decision imposed by the IMF.

    "It is a governmental decision to maintain it (4.25 percent of the Gross Domestic Product) or not in the next LDO.
    Especially since the primary surplus doesn’t even cover 50 percent of what we have to pay in interest. For many, many years all
    intelligent people in Brazil have known that for a country to have a debt that is 50 percent or 60 percent of the GDP would be no
    big deal, if this debt was set at pre-determined rates with longer payment periods. That is, Brazil’s problem is that payments
    are due every day. So the debt really does become expensive. Italy has an internal debt of over 100 percent of its GDP, and
    this doesn’t get in the way of the Italian economy, which, quite the contrary, is fine."

    Lula also maintained that the Brazilian is seeing better days: "All the indicators confirm a resumption of growth,
    and everybody, even the most pessimistic analysts, realizes that the economic is growing again. The paper and cardboard
    sector is growing again, the automobile industry is growing again, the electro-electronics sector is growing again. So the
    economy is at the point where we understood it should be. It will not stop growing, and we won’t enter any agreement that keeps
    the Brazilian economy from recovering lost time, especially because we must grow a lot in the next few years to provide the
    jobs that the Brazilian people need so much."

    Besides the US$ 14 billion credit line, the IMF agreed that Brazil have more time to pay its debt to the Fund. The
    Lula administration was worried that it would have to repay US$ 12 billion in 2005. Part of this amount—US$ 5.5
    billion—may be paid now in 2007, after the present mandate of the President.

    The only money from the agreement that will be used for social purposes is what was left from this year’s fiscal
    surplus: the US$ 1 billion that was saved besides the GNP’s 4.25 percent surplus promised to the IMF.

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