News Brief No. 99/45

News Brief: IMF Completes Brazil Review and Approves Next Credit Tranche

July 28, 1999

The Executive Board of the International Monetary Fund (IMF) today completed the third review under the Stand-By credit for Brazil. As a result, Brazil will be able to draw up to the equivalent of SDR 1,709.5 million (about US$2.3 billion) from the IMF.

In commenting on the Executive Board's discussion of the review, Stanley Fischer, First Deputy Managing Director, made the following statement:

"During today's discussion, Executive Directors expressed satisfaction that recent developments in Brazil's economy have been, on balance, significantly better than projected in the revised program formulated last March. In particular, inflation has remained relatively low, and economic activity is showing initial signs of recovery from the downturn in the second half of 1998. For the year as a whole, real GDP is now expected to decline by 1% or less, and consumer price inflation to be contained at around 8%.

"Directors commended the Brazilian authorities for their commitment to the policies supported by the arrangement with the Fund, including, in particular, the achievement of a primary fiscal surplus of the consolidated public sector equivalent to at least 3.1% of GDP in 1999, and a firm monetary policy, consistent with the announced inflation target. They stressed that the principal challenge now facing the authorities is to consolidate progress achieved so far and to lay the foundation for a sustained recovery. Directors expressed confidence that the authorities would stand ready to take additional measures, if needed, to ensure fulfillment of the fiscal and inflation targets.

"Directors supported the authorities' view that the floating exchange rate regime had served Brazil well so far, and that the substantial improvement in competitiveness resulting from the depreciation of the Real, together with the continuation of appropriate macroeconomic polices and structural reform, would contribute to a significant and sustained improvement in the current account of the balance of payments in the period ahead.

"Directors urged the authorities to deepen and accelerate efforts in important pending reforms, in particular, of the social security and the tax system. They also encouraged the authorities to continue their efforts to strengthen well-targeted and cost-effective social programs," Fischer said.