News Brief No. 02/24

News Brief: IMF Completes Second Review of Stand-By Arrangement with Brazil

March 26, 2002

The Executive Board of the International Monetary Fund (IMF) has completed the second review of Brazil's performance under the SDR 12.14 billion (about US$15 billion) stand-by arrangement approved on September 14, 2001 (see Press Release No. 01/38). So far Brazil has drawn SDR 3.7 billion (about US$5 billion) under this arrangement. Completion of the second review allows Brazil to draw, if needed, an additional amount of SDR 3.7 billion (about US$5 billion), of which SDR 3.3 billion (about US$4 billion) would be under the Supplementary Reserve Facility (SRF).

Following the Executive Board meeting on Brazil, Anne Krueger, Deputy Managing Director and Acting Chair, said:

"Brazil's performance under the Stand-By Arrangement remains strong, with all end-December performance criteria, structural benchmarks, and indicative targets having been achieved. The prudent macroeconomic policies pursued by the authorities have enabled Brazil to weather external developments with relative calm. However, with the external environment remaining uncertain, and given the potential for volatility in financial variables, the authorities' intention to maintain cautious policies is welcome.

"The public sector primary surplus exceeded the program target in 2001, and policies are in place for another strong outcome this year. Recent institutional changes-including the Fiscal Responsibility Law-give confidence that fiscal targets will be attained. At the same time, the debt-to-GDP ratio and the overall fiscal balance remain sensitive to movements in the exchange rate because of the significant share of the public debt that is indexed to this variable. As envisaged in the program, the authorities should seek opportunities to lower the stock of foreign exchange-indexed debt as market conditions allow.

"Inflation was higher than expected in 2001, but is projected to decline by year end to within the official target range of 3½ ± 2 percent. The authorities should remain vigilant in monitoring monetary policy and stand ready to take additional action if it appears that the inflation target is in peril. However, if inflation declines along the projected path, there may be scope for further nominal interest rate cuts during 2002. The authorities should also seek to make further progress in their structural reform agenda," Ms. Krueger said.