The International Monetary Fund (IMF) has completed the 10th and final review of Brazil’s Stand-By Arrangement, approved September 2002 and augmented and extended in December 2003. Under the agreement, Brazil drew US$ 26.2 billion from the total of US$ 41.7 billion available.
Brazilian government has indicated it will not make any drawings, and may not even renew the arrangement. New Minister of Planning, Paulo Bernardo, said yesterday that the country “does not need to renew the arrangement with the IMF.”
In her report about the arrangement review, which will expire next March 31st, IMF First Deputy Managing Director and Acting Chair, Anne Krueger, praised Brazil’s economic performance.
In her opinion, good results are due to the strict economic stabilization program implemented in the country.
Anne Krueger mentioned the 5.2% Gross Domestic Product (GDP) growth, in 2004, the best result in 10 years, and cited the contribution of the strong export performance for the country’s economic growth.
The report also makes reference to 2005 primary surpluses, as well as to expenses containment measures that will further reduce debt, and, according to Krueger, allow spending on high-quality infrastructure projects.
Anne Krueger adds that Brazilian monetary policy has been cautious, balancing interest rates and inflation expectations. “Brazil’s vulnerabilities have continued to decline as a result of these strong policies,” she wrote.
She also states in her report, that the now strong Brazil’s banking system may cope well with any failure, and observes that this characteristic has permitted the fall of sovereign spreads (intermediation cost of money loaned by banks).
She says that the Central Bank’s treasury notes negotiation, with the appreciation of Brazilian real in comparison with the US dollar, has allowed the government to reduce exchange-rate linked debt, and strengthen international reserves.
According to Krueger, this year, the government has already funded about 75% of the US$ 6 billion needed for payment of external debt interest.
Translation: Andréa Alves