Brazil, on the IMF’s Right Side

     Brazil, on the IMF's Right Side

    The head of the IMF’s
    Atlantic Division, Phil Gerson is in Brazil.
    After visiting the Economic Department of Brazil’s Central
    Bank, where he went to gather data on the Brazilian economy,
    he seemed pleased. In his view, Brazil has made important
    advances and the country is doing well in the economic area.
    by: Daniel

Picture A mission from the International
    Monetary Fund (IMF) has been in Brazil since last week for the
    seventh review of the agreement signed on August 29, 2002, between
    the Brazilian government and the Fund.

    The agreement, which was
    renewed last December, is only a standby arrangement, and, even though it
    involves nearly US$ 15 billion, the Minister of Finance, Antônio Palocci,
    has already announced that Brazil does not intend to withdraw any of the portions
    made available by the Fund.

    May 3, following a visit
    to the Economic Department of the Central Bank, where he went to gather data
    on the Brazilian economy, the head of the IMF’s Atlantic Division, Phil Gerson,
    liked what he saw and judged that things in the country are going well in
    the economic area, because, in his view, Brazil has made important advances.

    With respect to market
    oscillations influenced by the American economy, such as the elevation of
    the country risk premium to 701 points and a 1.67 percent rise in the value
    of the dollar, Gerson considered the situation normal and bets that the instability
    is temporary. He also said he is optimistic about the fulfillment of the primary
    surplus target established with Brazil for 2004.

    During the visits, which
    were programmed when the agreement was signed, the experts gather figures
    on the Brazilian economy and determine whether the targets set by the country
    and the Fund are being met.

    The most important target
    is the primary surplus (revenues minus expenditures, excluding interest payments),
    currently fixed at 4.25 percent of the Gross Domestic Product (GDP). Meeting
    this target means, in practice, that the country has been economizing resources
    to guarantee, at the very least, interest payments on its outstanding debts.

    This obligation, however,
    has not constituted a problem for the economic team and the Brazilian government
    sector, which managed to save US$ 6.9 billion (R$ 20.5 billion) in the first
    quarter. The primary surplus came to US$ 2 billion (R$ 6 billion), more than
    the amount determined with the Fund.

    From the perspective of
    the executive secretary of the Ministry of Finance, Bernard Appy, the second
    review of the agreement since its renovation last December should be quite
    smooth, since the government basically met all the targets. "The tendency
    is for the review to be untroubled, as has indeed been the case with all of
    the IMF’s evaluations of Brazil," he affirmed.

    The current agreement
    with the IMF has targets through the end of this year, with the final review
    scheduled for February, 2005. President Luiz Inácio Lula da Silva has
    already announced that the country does not plan to renew the agreement again
    with the multilateral organ. This does not, however, represent a break with
    the institution, of which Brazil is a member.

    The IMF mission, headed
    by Charles Collyns, will remain in the Brazil until May 7, according to information
    provided today by the IMF’s press office.

    Pilot Project

    In addition to examining
    the accounts of the Brazilian government and the economy in general, the specialists
    will meet with the government’s economic team to discuss details of the pilot
    project to exclude some investment expenses from the calculation of the primary
    surplus (revenues minus expenditures, except interest payments).

    This position was defended
    by Minister Antônio Palocci at the Fund’s Spring Meeting
    in Washington. If the project proves successful, the Brazilian government
    hopes to allocate more resources to the area of infrastructure.

    IMF’s Phil Gerson, after
    meeting with the Minister of Finance, Antônio Palocci, told reporters
    that it is premature to discuss the pilot project to revise the calculation
    of the primary surplus (revenues minus expenditures, excluding interest payments).
    The project could remove public spending on infrastructure from the calculation
    of the primary surplus.

    He informed that the pilot
    project will be examined alike in other countries besides Brazil. The head
    of the IMF mission also said that there are no changes in the targets set
    with the Brazilian government in the current agreement.

    Brazil has already obtained
    the support of ten Latin American countries to effect changes in the conditions
    imposed by the International Monetary Fund (IMF) when it loans money.

    Argentina, Bolivia, Chile,
    Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela agree with
    Brazil in calling for the IMF not to count as expenses investments made in
    infrastructure—basic sanitation, regional integration, settlements, and
    energy distribution.

    The proposal was articulated
    by the Minister of Planning, Guido Mantega, during the 45th Annual Meeting
    of the Assembly of Governors of the Inter-American Development Bank (IDB),
    in Lima, Peru. The document, entitled the Letter from Lima, was presented
    at the annual meeting between the IMF and the World Bank, April 15.

    At the meeting in Lima,
    the president of the IDB, Enrique Iglesias, affirmed that growth in Latin
    America will be 4 percent this year, more than the 1.5 percent registered
    in 2003.

    At the end of March,
    the IMF approved the sixth review of its credit agreement with Brazil
    and, with this, liberated another US$ 1.34 billion, giving Brazil the right
    to withdraw a total of US$ 9.6 billion. The Brazilian government announced
    that it does not intend to use this amount, since the agreement represents
    a "precautionary accord."

    In an official note,
    the IMF agreed with the "cautious economic policy" adopted in response
    to the rate of inflation. This "demonstrates that government authorities
    are committed to making sure that inflation is at the core of its targets
    for 2004," reported the director of the Fund, Anne Krueger, who foresees
    "robust" economic growth for this year.

    The president of the
    Central Bank, Henrique Meirelles, during the Inter-American Development Bank
    (IDB) seminar in Lima, Peru, declared that the Brazilian economy would grow
    3.5 percent in 2004. This forecast was also forwarded to the IMF in a letter
    of intentions signed by the Minister of Finance, Antônio Palocci, together
    with Meirelles.

    Daniel Lima works for Agência Brasil (AB), the official press agency
    of the Brazilian government. Comments are welcome at

    Translated from the
    Portuguese by David Silberstein.

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