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.

Daniel Lima

Meirelles
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 lia@radiobras.gov.br.

Translated from the Portuguese by David Silberstein.