We request the completion
of the Seventh Review by the IMF. We
emphasize that we will continue to treat the arrangement as
precautionary. As usual, we will maintain a close policy dialogue
with the Fund and stand ready to take additional measures as
appropriate to ensure the achievement of the program’s objectives.
This is a Letter of Intent of the government of Brazil, which describes the
policies that Brazil intends to implement in the context of its request for
financial support from the International Monetary Fund (IMF).
Ms. Anne O. Krueger
Acting Managing Director
International Monetary Fund
Washington, D.C. 20431
Dear Ms Krueger:
1. The economic recovery
is underway. We believe our policies will help deliver 3.5 percent growth
this year. Given the successful implementation of monetary policy, inflation
is now in the mid-single digits, on-track to meet this year’s 5.5 percent
Retail sales are rising
and consumer and business confidence indicators point to optimism. Driven
by the strong performance of exports, the current account should end the year
Looking forward, real
medium-term interest rates have fallen to 10-year lows in the wake of strong
fiscal results and progress in other economic policy areas.
The Budget Guidelines
Law sent to Congress in April maintains the primary surplus target at 4.25
percent of GDP in 2005-07 and underlines the government’s commitment to reducing
the public debt.
2. Our reform agenda this
year is broader than in 2003 and is moving forward in its multiple areas,
strengthening medium-term growth prospects. Congress approved a reform of
the electricity sector that will allow the sector to work on more of a market
basis, and the government is now drafting implementing regulations.
The law regulating public-private
partnerships has been approved by the Lower House and is now under review
in the Senate. The Senate is also voting on an improved bankruptcy law, which
should reduce the cost of credit.
The Housing Initiative
bill, which lays the basis for an efficient housing credit market, will help
reduce the shortage of houses and increase job opportunities.
The government submitted
to Congress legislation to support research and private sector innovation,
which we consider a core part of a modern strategy to raise Brazil’s industrial
3. All performance criteria
for the Seventh Review under the Stand-By Arrangement were met and the two
structural benchmarks have been completed.
In particular, the ruling
that allows civil servants and retirees to pledge a fraction of their future
incomes to repay consumer loans has been approved. A presidential decree creating
investment accounts that are exempt from the bank-debit tax (CPMF) was issued
on April 1.
We believe this measure
will play an important role in increasing savings in Brazil and fostering
competition in the banking sector. Looking forward, changes introduced to
strengthen the bankruptcy law in the Senate will require that it return to
the Lower House for reapproval.
As a result, training
of judges on the new law, which is an end-June structural benchmark, will
be delayed. We therefore request that the test-date for this benchmark be
moved to end-December 2004.
4. In light of these considerations,
we request the completion of the Seventh Review. We emphasize that we will
continue to treat the arrangement as precautionary. As usual, we will maintain
a close policy dialogue with the Fund and stand ready to take additional measures
as appropriate to ensure the achievement of the program’s objectives.
Minister of Finance
Henrique de Campos Meirelles
President of the Central Bank of Brazil
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