IMF Lauds Brazil But Also Urges Budgetary Reform

IMF’s managing director Rodrigo de Rato, during a press conference in Singapore, Friday, September 15, praised Brazil for setting a good example in Latin America on how to deal with social spending. Rato also said that Brazil needs a budgetary modernization.

A reporter introduced the theme Brazil by asking Rato to comment on the fact that Brazil is complaining about the way the IMF intends to conduct their quota reform and also about Paris Club spending in the country.

"What I have to say is that I believe, not only in the specific interest of Brazil, but in the interest of all of Latin America, to have a change in the Fund and we make the Fund more responsive to emerging economies and low-income countries. I don’t have any doubt about that.

"And my very frequent interchanges of views with Latin American representatives and members of governments, and Brazilian ones in particular, make me believe that is a shared view. I think that we are moving and that is the best thing the institution can do.

"We are moving in making more dynamic economies have a more important role to play in the institution, and many of those, more dynamic economies are emerging economies. And we are also moving into a very important, new dimension of recognizing low-income countries’ voices.

"I don’t have any doubt that view is shared by the Brazilian authorities and of course then we will have to discuss issues very concretely. I understand that is not easy for countries to agree to, for instance, a new formula, but certainly as the agreement of the Board recognizes, GDP should play a significant important role in that new formula, together with other components besides GDP.

"And that, of course, I think that is also a very important question that should be reflected by governments like Brazil when they make their decisions.

"On Brazil’s economic policies, certainly first of all, social spending, I would say, independently of the actual figures, Brazil has made very important steps in making social spending more effective, and poverty reduction in Brazil in the recent years has been moving forward.

"It is a good example in Latin America, not the only one, but a good example of changes in the way of targeting social spending for the better. So, in that respect, I want to say that I am encouraged by what has been learned.

"At the same time, I think that the effort that Brazil has made in reducing public debt is increasingly important, and there are challenges there, of course, there are challenges of keeping a high level of primary surplus and at the same time addressing social needs and infrastructural needs.

"As I have said on occasion that in Brazil, I want to repeat it now, one of the big challenges of Brazil’s budgetary policy is rigidity. We believe Brazil needs a more flexible budgetary framework in which less expenditures are preconceived in terms of assigning already the revenue. That is a key element in the modernization of the budgetary framework in Brazil.

"I also want to thank the Brazilian authorities by the work we have done together in exploring the role of private capital in contributing to infrastructure, and I think that some of the experiences in Brazil, but also in Chile and in South Africa can be very useful for many emerging economies."

John Lipsky, IMF First Deputy Managing Director, added to Rato’s comment by saying: "I want to add one point. Our basic outlook for the Brazilian economy is a positive one. We’re looking for somewhat faster growth next year, about 4 percent growth in Brazil; so the context for these policy opportunities is going to be a positive and benign one, and our hope is that in this relatively benign environment that the authorities will be able to continue the progress in regard to spending that the Managing Director just discussed."

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