Brasília, Brazil
November 3, 2000
Mr. Horst Köhler
Managing Director
International Monetary Fund
Washington, D.C. 20431
United States of America
Dear Mr. Köhler:
In its letter of November 13, 1998, the government of Brazil requested support from the
Fund in the form of a stand-by arrangement (SBA) for a period of 36 months. That letter, and our
subsequent letters requesting the completion of the periodic reviews under the SBA—the
fifth of which was completed by the IMF Executive Board on May 31, 2000—had attached a
Memorandum of Economic Policies (MEP) describing the government's
program of economic policies that has been supported under the SBA. The government remains
fully committed to the thrust of that program. The MEP attached to this letter outlines the
progress to date in implementing the government's economic policies and discusses its current
economic program and the economic outlook for the remainder of this year. As usual, also
attached is a Technical Memorandum of Understanding that sets out the
specific quantitative targets (in the form of performance criteria, indicative targets, and structural
benchmarks) through the end of this year, that are to be observed under the SBA.
Reflecting the success of the policies that have already been implemented, Brazil's economy
has continued to perform strongly this year, with the economic recovery accelerating, inflation
declining, the external accounts improving, and the fiscal performance strengthening further. We
believe that the reforms that are currently underway and which are detailed in the attached MEP will be instrumental in promoting sustainable, noninflationary economic
growth, lead to further improvements of Brazil's external accounts, and help to address Brazil's
priority social needs. The government stands ready to take additional policy measures, as needed
to ensure the achievement of its overall objectives. We look forward to continued support from
the Fund to these policies.
During the period of the arrangement, we will maintain the customary close policy dialogue
with the Fund on the implementation of the program under the SBA.
Yours sincerely;
/s/
Pedro Sampaio Malan
Minister of Finance |
|
/s/
Armínio Fraga Neto
President—Central Bank of Brazil |
Brazil—Memorandum of Economic Policies
Brazil has successfully completed the first five reviews under the Three-Year Stand-By
Arrangement (SBA) from the International Monetary Fund (the Fund) that was approved by the
Fund's Executive Board on December 2, 1998. This Memorandum of Economic Policies (MEP)
reviews the performance of the Brazilian economy so far in 2000, and outlines the proposed
program framework for the remainder of this year, in light of the updated economic and policy
outlook.
Economic Performance to Date in 2000
Brazil's economy continued to perform strongly to date in 2000, with the economic
recovery accelerating, inflation declining, the external accounts improving, and the fiscal
performance strengthening further. Gross domestic product (GDP) grew by
3.6 percent on average in the first half of 2000, compared with the same period in 1999,
reflecting a seasonally adjusted annualized growth rate of 4.8 percent compared with the
second half of 1999. Employment expanded by 5.1 percent in the
12 months to September 2000. Due to significantly improved prospects for finding a
job, the increase in employment was accompanied by strong reentry into the labor market.
Nevertheless, the unemployment rate declined from 7.4 percent in September 1999
to 6.7 percent in September 2000.
Inflation remained subdued, with consumer prices, as measured by the broadest
national index (IPCA) that is the yardstick for the inflation targeting framework,
increasing by just 1.6 percent in the first half of the year. It accelerated temporarily in July
and August, reflecting increases in administered prices and the effects of adverse weather
condition on food prices, but has resumed a clear downward trend since September. The
12-month rate of increase in the IPCA declined from 8.9 percent in December 1999 to
6.5 percent in June 2000—significantly below the 7.0 percent central target for
that month in the program—, picked up in July–August, but slowed down again to
7.7 percent in September, 0.2 percentage points above the upper limit of the inner
band in the program. The general price index (IGP-DI), in which prices of tradable
goods have a substantially larger weight than in the IPCA, rose by 8.1 percent in the first
nine months of 2000, reflecting a further increase in the relative prices of those goods.
Brazil's external trade performance continued to improve, albeit at a somewhat slower
pace than initially projected. The trade balance shifted into a surplus of 0.7 billion in
the first three quarters of 2000, from a deficit of US$0.8 billion during the same period of 1999,
with exports rising by 18.2 percent in value terms, well in excess of the 13.6 percent
growth in imports during the same period. The strong export performance was led by
manufacturing exports, which grew by almost 23 percent in volume terms in
January–September 2000, compared with the same period in 1999. Average export prices
grew by 2.6 percent over the same period. The recent increase in
imports mainly reflected a strong rebound in the volume of intermediate good imports
and the high international prices of oil products, which account for over 10 percent of total
imports. By contrast, imports of consumer durables and capital goods declined in volume terms in
the first nine months of 2000, compared to the same period in 1999, pointing to continued import
substitution.
The services account of the balance of payment posted a cumulative deficit of
US$18.0 billion in the first three quarters of 2000, only marginally lower than in the same
period of 1999, with a small increase in net interest payments abroad and a decline in net transfers
from abroad being more than offset by lower profit and dividend remittances. As a result of these
developments, the current account deficit of the balance of payments
declined to US$15.9 billion in January–September 2000, from around
US$17.3 billion in the same period of last year. The deficit was more than fully financed by
net foreign direct investments (FDI), which reached US$21.3 billion during the first nine
months of 2000, notwithstanding a slowdown in the pace of privatizations.
The continued strengthening of market confidence in Brazil's economic performance was also
reflected in improved access to foreign financing, with net issues of medium- and
long-term debt inflows reaching a total of about US$5.7 billion through September.
Sovereign debt issues in international capital markets, at declining spreads, amounted to
US$11.4 billion—of which US$6.1 billion reflected exchanges to retire
outstanding Brady bonds—in the first three quarters of the year. The total external
debt has declined to US$232 billion (40.8 percent of estimated GDP) in August
2000, from about US$241 billion (45.6 percent of GDP) at end-1999, also reflecting
the repayment (partly ahead of schedule) of most of the international support package of 1998.
Only 12 percent of this debt, consisting mostly of trade financing, is of original maturity of
one year or less. All the quarterly ceilings in the program on the external debt of the nonfinancial
public sector were observed with ample margins.
Fiscal developments at all three levels of government have been substantially
better than programmed through the first nine months of this year. The accumulated
primary surplus of the consolidated public sector in January–September 2000
amounted to R$35.3 billion (4.4 percent of estimated period GDP). In the 12
months to September, the primary surplus reached a record R$35.8 billion
(3.4 percent of estimated period GDP), compared with a program target for the year as a
whole of R$36.7 billion, equivalent to 3.4 percent of projected GDP. As a result of the
substantial primary surplus, the declining trend of domestic interest rates, and a relatively stable
exchange rate, the public sector borrowing requirement (PSBR) declined from
10 percent of GDP in 1999 to 3.8 percent of GDP in the 12 months to
September 2000. The net public debt at end-September 2000 stood at
R$548 billion (equivalent to 48.5 percent of estimated GDP), marginally above the
indicative target in the program.
At the central government level—defined to include the treasury, the social
security system and the central bank (BCB)—the strong performance in the first nine months
of the year (a primary surplus, measured above the line, equivalent to 2.6 percent of the
estimated period GDP) mainly reflected the maintenance of tight limits on discretionary
expenditures. Despite continued growth in the combined revenue from taxes and social security
contributions, overall central government revenues declined slightly in relation to GDP, reflecting,
among others, reduced receipts from concessions, reductions in the rate of the financial
transactions tax (CPMF), and the disappearance of the surplus in the petroleum account of the
Treasury. In order to arrest the erosion of the surplus of the petroleum account, the government
increased in July the ex-refinery prices of gasoline and diesel oil by 15 percent, and reduced
the subsidy to liquefied gas (GPL). The deficit of the public social security system for private
sector workers (INSS) has remained basically unchanged in nominal terms in the first nine
months of 2000, compared with the same period in 1999, reflecting the favorable impact of the
strong growth of formal employment on social security contributions, improved enforcement, and
the initial effects of the social security reforms enacted in recent years.
The consolidated primary surplus of the states and municipalities in the first nine
months of 2000 rose significantly, to the equivalent of 0.7 percent of estimated
period GDP, from 0.4 percent of GDP in the corresponding period of 1999. The financing
constraints embedded in the debt agreements negotiated with the federal government, as well as a
strong revenue performance, contributed to the improvement in the finances of the states. The
federal government has recently concluded similar debt restructuring agreements with about 180
municipalities, including the largest ones. The public enterprises also performed strongly
in the first nine months of 2000, posting a primary surplus equivalent to 0.9 percent of
period GDP, led by the federal enterprises, in particular the state oil company (Petrobrás),
which has benefited from the continued high level of international oil prices, since its production
is equivalent to three quarters of the domestic consumption of petroleum products.
The government has also made significant further progress in structural fiscal
reform. As a major step toward fiscal sustainability, the Fiscal Responsibility Law
was enacted in early May, after being approved by congress with a large majority. This law,
among other things, prohibits financial support operations among different levels of government;
sets limits on personnel expenditures of federal and local governments; and requires that limits
also be set by the senate, upon proposal by the President, on the indebtedness of each level of
government. Such limits have been proposed by the President. The law also requires substantial
improvements in transparency and accountability for the management of public resources.
Complementary legislation on penalties for violations of the requirements of the law by public
officials (the "fiscal crimes" law) has also been approved by congress recently. In
June, the senate approved the Multi-Year Plan for 2000–03 (PPA), which outlines
the government's strategy for allocating federal budget resources among spending programs over
the same period, and aims at enhancing predictability, accountability, and efficiency in federal
budgetary spending.
The government's efforts to protect core social programs and improve the quality and
efficiency of social spending in recent years have begun to bear fruit, as reflected in the
improvements in social indicators that were revealed by the preliminary results of the 1999
household survey (PNAD99) that were released by the National Institute of Statistics (IBGE) in
July 2000. The PNAD99 showed, among other things, important advances in education and
health care, and some improvement in income distribution.
In recent months, the privatization of the three large electricity generation
companies has been delayed by the need to modify their respective privatization models, and that
of the former state bank of São Paulo (BANESPA) by repeated judicial challenges.
However, several state energy companies (CELPE, CEMAR), a state gas company (Gás
Sul), a state sanitation company (Manaus Saneamento), and the state bank of Paraná
(BANESTADO) were successfully privatized this year, generating total receipts of R$4.7 billion.
In addition, substantial private sector involvement in the energy sector is already being achieved
through joint ventures, with minority participation of Petrobrás and Eletrobrás, for
the new thermoelectric power plants and electricity transmission lines. Also, the government
carried out as scheduled the sale of a large noncontrolling stake of Petrobrás, for a price
of R$7.2 billion.
The BCB has continued to successfully implement its inflation targeting framework for
monetary policy, with a view to anchoring price expectations to a gradually declining target
path for inflation. As reported in the BCB's quarterly inflation report of September 2000,
on the basis of the interest rates that prevailed at the time, annual inflation was projected at
6.7 percent by end-2000 (slightly above the 6 percent central target, but well within the
4–8 percent target range for end-2000), and at 3.7 percent by end-2001
(compared with a central target of 4 percent). To minimize risks of a more significant excess over
the target for end-2000, the BCB has kept the annualized overnight interest rate (SELIC)
unchanged at 16.5 percent since July 19, 2000.
The BCB also has continued its efforts to improve the functioning of credit markets,
and facilitate a narrowing of intermediation spreads in the banking system. From
October 1999 to September 2000, average spreads have been reduced by
15.5 percentage points. In part, this reflects the lowering of minimum reserve requirements
for demand deposits, from 65 percent in October 1999 to 45 percent as from
June 2000. This has promoted a sustained recovery in bank credit to the private
sector in recent months. In addition, the regulatory prudential framework has
continued to be improved, particularly through the implementation of a forward looking loan
classification system and of a new system of capital charges related to interest rate risk. The
capital base of domestic banks has also been strengthened, a fact which has supported the
recovery of credit to the private sector in recent months. The BCB has further strengthened
banking supervision, including through the creation of separate departments for onsite
and offsite supervision, and the hiring and training of new staff.
Continued efforts to improve public debt management and the secondary market for
government debt, together with the strengthened market confidence and declining inflation
expectations, have allowed the government to increase the average maturity of total
domestic securitized federal debt outstanding in the market to 29.3 months
(14.3 months for securities placed through auctions) at end-August 2000. The
average maturity of new issues has also increased from 16.8 months in February 2000 to
24.8 months in August 2000. At the same time, the share of fixed-rate
securities has risen from 9.2 percent at end-1999 to 15 percent at
end-August 2000.
Policies and Prospects for the Remainder of 2000
In view of the sustained and broad-based strengthening of economic activity, GDP
growth is expected to reach 4 percent on average in 2000, and to accelerate further in 2001.
Assuming continued moderation in wage adjustments, the strong growth of output should be
reflected in a sustained further growth of employment, and a continued decline in
unemployment in the rest of this year and beyond. Following the above-mentioned
temporary acceleration in the third quarter, the rate of inflation is expected to resume its
downward trend in the fourth quarter, to 6½–6¾ percent by
year-end.
The external trade balance is projected to be in broad equilibrium for the year as a
whole, as the continued strong growth of manufacturing exports is expected to be offset by the
persistence of high international oil prices, relatively depressed prices of some important
agricultural exports, and the pickup in imports. The current account deficit is likely to
rise slightly in value terms from the US$25 billion recorded in 1999, but to decline in
relation to GDP, from 4.7 percent of GDP in 1999 to under 4½ percent of
GDP in 2000. This deficit is projected to continue to be fully financed by FDI.
Other medium- and long-term (MLT) capital inflows are expected to show a sizable
positive net balance, reflecting, in particular, a decline of MLT debt amortizations, and improved
access to international capital markets by both official and private borrowers. Overall, Brazil's
external public debt at year-end is projected to be well under the US$95.5 billion proposed
ceiling in the program, of which at most US$4.0 billion would be of original maturity of
one year or less.
The overall balance of payments is expected to show a moderate surplus, allowing
some rebuilding of net international reserves (NIR), which will therefore remain
comfortably above the US$25 billion floor in the program for the rest of this year. On the
assumption that, as is the government's intention, no further purchases are made under the SBA,
gross international reserves at end-2000 are projected to be equivalent to
5.3 months of imports of goods and nonfactor services, and to over 56 percent
of short-term debt on a residual maturity basis (about 140 percent if trade credits are
excluded).
For 2000, the program envisaged an increase equivalent to about 0.2 percent of GDP
in the primary surplus of the consolidated public sector from its 1999 level (equivalent to
3.2 percent of GDP). It is therefore proposed that the cumulative primary surplus target for
2000 in the program be set at R$36.7 billion, equivalent to about 3.4 percent of projected
GDP. Given the current prospects for the finances of state and local governments and their
enterprises (see below), this target appears to be consistent with the revised budget framework
law for 2000, approved by congress in June, which mandates a combined primary surplus of
the central government and the federal enterprises of at least R$30.5 billion for this
year.
Current projections put the central government surplus at around
R$23.5 billion (2.2 percent of GDP). A reduction in revenues relative to
GDP—partly reflecting the disappearance of once-off revenues recorded last
year—will be largely compensated by the ongoing efforts to contain and rationalize
primary spending, while safeguarding priority programs, especially in the social areas. The
decline of the central government primary surplus in the latter part of this year reflects a
number of factors, in particular the 0.08 percentage points reduction in June in the rate of
the CPMF; higher expenditures on pensions, following the adjustment of minimum pensions in
April and of other benefits in June; and an acceleration of spending on current and capital goods
and services, following the approval of the budget in May.
The good performance of the states' and municipalities' finances so far in 2000 is
expected to be largely sustained in the rest of the year, reflecting the effects of the debt
restructuring agreements mentioned above, and also continued strength in revenues. Current
projections put the consolidated primary surplus of these governments at around R$5.6 billion
(0.5 percent of GDP) in 2000. The fiscal performance of the public enterprises is
also expected to remain strong, with a projected primary surplus of around R$7.6 billion
(0.7 percent of GDP) for the year. This reflects in particular, the favorable impact of still
relatively high international oil prices on the finances of Petrobrás. Taken together, these
projections lend confidence that the targeted primary surplus for the consolidated public sector in
2000 will be achieved.
Under the working assumptions of a broad stabilization of the overnight interest rate and the
exchange rate around their current level, the PSBR is projected to decline to
4.6 percent of GDP, and the net public debt not to exceed R$584.5 billion (about
50 percent of GDP), after allowance for privatization revenues and the planned recognition of
previously unrecorded liabilities and other debt adjustments, as set out in the attached Technical
Memorandum of Understanding (TMU). The government also intends to continue its efforts to
increase the share of fixed-rate securities in the domestic public debt, further raise the average
maturity of its domestic debt, and gradually reduce the foreign-exchange indexed debt
outstanding. The government is also improving the composition of its external debt by extending
duration, smoothing the amortization profile, and diversifying the currency mix.
The government intends to sustain its structural fiscal reform effort in the rest of
this year and into 2001. Efforts will continue to be made in particular to secure as early as
possible approval of the last two remaining pieces of implementing legislation for the
administrative reform; the pending bills for complementary pension funds for private and public
employees; and the proposed social contribution for retired civil servants.
The government is also continuing its efforts to secure the necessary political support for
reforms of the tax system. These reforms include: (i) a bill to modify the
existing bank secrecy legislation, aimed at facilitating tax enforcement; this bill has been approved
in the senate and is now being considered in the Lower House of Congress; (ii) a new tax
code, including provisions to limit the scope for tax avoidance, erosion of the tax base, and
excessive tax litigation; (iii) a bill transforming the rural property tax into a special
contribution to finance land reform; and (iv) a new proposal for the reform of indirect
taxation, that envisages, inter alia, the unification across the federation of the base and the rate
structure of the state-level VATs (ICMS), a provision which will help end the current
proliferation of tax incentives under this tax; and the progressive replacement over a three-year
period of the current cascading social contributions (COFINS and PIS-PASEP)
with single-stage ones, or the introduction of deductions or credit mechanisms aimed at
eliminating the cascading and its attendant distortions. The government has also recently
submitted to congress a proposed constitutional amendment establishing an explicit system
for taxing oil products, to replace the current cross-subsidy arrangement embodied in the
petroleum account of the federal government, and to offset the potential adverse impact on
federal revenues of the scheduled liberalization of the oil market, at the end of 2001.
Despite the above-mentioned delays, for the most part outside the government's control, the
government will continue its privatization efforts in the remainder of this year and in
2001. In particular, it will press ahead with its efforts to privatize BANESPA, the sale of which is
scheduled to take place on November 20, 2000, and the national reinsurance company (IRB), and
will also continue preparations for the privatization of the remaining state banks in 2001 and the
privatization of the large electricity generation companies.
The government submitted to congress in August a budget proposal for 2001
envisaging a central government primary surplus of R$28.1 billion, which would
facilitate the achievement of a consolidated public sector primary surplus equivalent to at
least 3.0 percent of projected GDP. At the same time, and with a view to signaling its
commitment to sustained fiscal discipline through the end of the current administration, the
government announced a target of 2.7 percent of GDP for the consolidated public
sector primary surplus for 2002. The proposed budget for 2001 will allow the federal
government to address priority spending needs, especially in the social areas, while
safeguarding fiscal sustainability, as the public sector net debt is expected to continue to
decline. Among recent initiatives in the social areas are intensified expenditure efforts in health,
education, and income support programs in regions with social development indices below the
national average (Programa Alvorada), and in anti-crime and civil protection (Plano
Segurança).
Monetary policy will continue to be conducted within the inflation targeting
framework, the institutional basis of which the government intends to strengthen in the course of
next year by proposing to congress a revised organic law for the central bank. In this context, the
actions of the BCB, and, in particular, changes in the SELIC will continue to be guided by the
inflation outlook. The inflation target for 2002, which was announced in June, envisages
a further decline in consumer price inflation to 3.5 percent, again with a tolerance interval
of ±2 percentage points. On the basis of the periodic discussions between the BCB and the
Fund staff, the latter will report to the Executive Board of the Fund on the conduct of monetary
policy and its assessment thereof during each scheduled review of the program. These discussions
supplement the consultation mechanism on deviations of the actual 12-month rate of inflation
from the target path established in the context of the fourth review of the program, and together
they replace the traditional ceilings in the program on net domestic assets (NDA) in the BCB.
The BCB is setting up a real-time gross settlements system to improve payments
arrangements and significantly reduce default risks. The BCB will also continue its efforts to
further strengthen its banking supervision functions, in cooperation with the various
supervisory authorities; improve the functioning of domestic financial and capital markets; and
further enhance transparency of its own operations. The BCB is also carrying out an in-depth
audit of the federal banks, which follows an assessment made by external consultants
that has been made available to the public; these inputs will be used to define, as rapidly as
possible, an appropriate strategy for strengthening these banks.
Substantial further steps were taken to promote dialogue, and enhance macroeconomic and
policy convergence within Mercosur. The 3 percent temporary surcharge on the
common external tariff that was agreed in 1997 is envisaged to be eliminated in 2001, and a
number of items that have been kept in exception lists will converge to the common external tariff.
Only a limited group of items will remain in exception lists and full convergence will occur
gradually until 2005. As a first step in improving macroeconomic coordination within the region,
efforts are being made by the Mercosur members to harmonize macroeconomic and fiscal
statistics. Mercosur member countries have also agreed to announce harmonized fiscal targets by
March 2001. The government remains committed to further multilateral trade
liberalization, in the context of negotiations that include agricultural products. It is already
pursuing discussions with a number of countries and regional blocks toward mutual reductions of
trade barriers.
Progress continues to be made in the statistical improvements that are needed for Brazil's
subscription to the Special Data Dissemination Standard (SDDS), which is planned by
end-2000. The publication, for the first time in early October, of quarterly estimates of nominal
GDP through the second half of the year 2000 represents an important step in this direction; these
quarterly estimates will be updated each quarter.
In sum, Brazil has continued its successful economic performance into the second year of
the program. The government remains fully committed to the policies and targets in the
program for this year, but is requesting some modifications in the timetable for certain structural
benchmarks of the program, to reflect delays, largely out of government control, in some of the
envisaged structural reforms and in the privatization program. The policies and targets for the
third year of the program supported under the Stand-By Arrangement will be discussed early in
2001.
Brazil—Technical Memorandum of Understanding
This Technical Memorandum of Understanding (TMU) for the Sixth Review under the
Stand-By Arrangement (SBA) for Brazil sets out the specific performance criteria (PCs),
indicative targets (ITs), structural benchmarks (SBs) and assumptions that will be applied under
the SBA in the remainder of 2000.
I. Phasing of Purchases and Reviews
The general phasing of purchases and reviews through 2001 is shown in Table 1 below. Accordingly, after completing the sixth review, which will
make available to Brazil a purchase under the credit tranches (CT), there will be two more
reviews and four more purchases under the CT in the year 2001. Performance criteria (PCs),
indicative targets (ITs), structural and statistical benchmarks, and other relevant program
parameters for 2001 will be established during the seventh review under the arrangement.
Table 1. Brazil: Phasing of Purchases and Reviews
Amounts (in million SDR) and
sources |
Date of Board Review (earliest possible dates
unless indicated otherwise) |
Conditions and
remarks |
651.240 from CT |
November 22, 2000 (preliminary Board
date) |
Completion of the sixth review, and observance of the
relevant PCs under the arrangement. |
217.080 from CT |
February 28, 2001 |
Completion of the seventh review, and observance of
the relevant PCs under the arrangement.1 |
217.080 from CT |
April 30, 2001 |
Observance of the relevant PCs under the
arrangement.1 |
217.080 from CT |
July 30, 2001 |
Completion of the eighth review, and observance of
the relevant PCs under the arrangement.1 |
217.080 from CT |
October 30, 2001 |
Observance of the relevant PCs under the
arrangement.1 |
1All PCs, ITs, and structural benchmarks for
the year 2001 will be established during the seventh review of the arrangement; these will be
reviewed and modified as necessary during the eighth review of the arrangement. |
II. Quantitative Targets
1. Fiscal Targets
a. Performance criterion for the primary balance
of the consolidated public sector1
|
Floor2
(In millions of R$) |
|
Cumulative primary balance of the
consolidated public sector1 |
|
January 1, 19990–December 31, 1999
(preliminary) |
31,098 |
|
January 1, 2000–September 30, 2000
(performance criterion)3 |
29,000 |
January 1, 20000–December 31, 2000
(performance criterion) |
36,720 |
1As defined below.
2Minimum cumulative primary surplus of the consolidated public sector.
3As specified in the fifth review of the SBA (EBS/00/82). |
|
The cumulative primary balance of the consolidated public sector is defined as the
sum of the cumulative primary balances of the various entities that make up the public sector. The
public sector is defined to comprise the central government, state and municipal governments, and
the public enterprises (including federal, state and municipal enterprises); the central government
includes the federal government, the social security system, and the Central Bank of Brazil
(BCB).
For any given month, the primary balance of the consolidated public sector is measured, in
Brazilian reais (R$), as the total net interest (i.e., net interest accrued on the consolidated
net domestic debt of the public sector, plus the net interest due (competência
contratual) on the net external debt of the public sector) minus the borrowing requirement of
the consolidated public sector, where the public sector is defined as above. For foreign-exchange
indexed government securities, the interest rate is the accumulated rate of change of the U.S.
dollar vis-à-vis the R$, plus the fixed coupon rate. The fixed coupon rate applies to the
nominal value of the security revalued by the rate of change of the U.S. dollar
vis-à-vis the R$ from the issuance date to the relevant date. For any given month, the
borrowing requirement of the consolidated public sector is defined as the change in the nominal
outstanding net domestic debt plus the change in the net external debt, converted into R$ at the
actual period average R$/US$ exchange rate.1 The stock
of the U.S. dollar-indexed domestic debt is revalued at the end of a given month to reflect any
change in the value of the real vis-à-vis the U.S. dollar that has taken place during
the month. The proceeds from privatization during that period are added to these results; amounts
representing the recognition of unregistered liabilities during that period are subtracted from these
results. The cumulative primary balance from January 1 of a given year to the relevant date of the
same year is the sum of the monthly primary balances of the consolidated public sector for that
period.
The above floor for the cumulative primary balance of the consolidated public sector is
predicated on the baseline path for concession revenue shown in Table 2
below. Deviations from this path will be taken into account as appropriate during the relevant
reviews.
b. Indicative target on the net debt of the
consolidated public sector 1
|
Ceiling2
(In millions of R$) | |
|
Total net debt outstanding of the
consolidated public sector | |
|
End-December 1999 (preliminary) |
516,572 | |
|
End-September, 2000 (indicative target) |
550,000 | |
End-December, 2000 (indicative target) |
584,500 | |
1The public sector is defined as above; the net debt includes the monetary
base.
2Maximum stock outstanding of total net debt of the consolidated public
sector. | |
|
Total net debt outstanding of the consolidated public sector (dívida
líquida total) equals the public sector's gross debt (including the monetary base), net
of its financial assets; it is defined as the sum of the registered net domestic and net external debt
(all valued in R$), of the central government, state and municipal governments, and the public
enterprises (including federal, state and municipal enterprises); the central government is defined
as above.
Total net debt outstanding of the consolidated public sector is measured on an accrual basis
(including accrued interest) for the domestic debt component, and on an interest-due basis
(competência contratual) for the external debt component. The stock of external
debt and of foreign-exchange indexed domestic debt is valued at the actual R$/US$ exchange rate
prevailing at the end of each period.
Deviations of the net debt of the consolidated public sector from the above ITs will be taken
into account during the relevant reviews in setting or revising the PCs for the primary balance of
the consolidated public sector for subsequent periods.
The central government will continue to incorporate into its registered debt various
unregistered liabilities that are currently outstanding. The above ceilings for the total net debt
outstanding of the consolidated public sector are predicated on the paths for privatization receipts
(defined here to exclude concession revenue) and the recognition of unregistered liabilities that
are shown in Table 2 below. These ceilings will be adjusted downward
(adjusted upward) to the extent that privatization receipts exceed (fall short of) the amounts
implied by Table 2 below; they will be adjusted upward (adjusted
downward) to the extent that the recognition of unregistered liabilities exceeds (falls short of) the
amounts implied by Table 2 below.
2. External Sector Targets
a. Performance criterion on external debt of the
nonfinancial public sector1
|
Ceiling (In millions of
US$) |
|
Stock of total external debt of the
nonfinancial public sector at |
|
End-December 1999 (actual) |
88,436 |
|
End-September, 2000 (performance
criterion)2 |
95,000 |
End-December, 2000 (performance
criterion) |
95,500 |
1The data in this table apply to all external debt of the nonfinancial public
sector that is disbursed and outstanding. The nonfinancial public sector includes the federal, state,
and municipal governments, the public enterprises, and the social security system. Excluded from
measured debt stocks are any liabilities incurred in the context of the exceptional financing
package, either vis-à-vis the Fund or bilateral sources of support.
2As specified in the fifth review under the
SBA (EBS/00/82). |
|
For any given quarter, the stock of debt disbursed and outstanding is defined as
the stock of debt disbursed and outstanding at the end of the previous quarter, plus gross
disbursements that take place during the quarter in question, less the gross amortization payments
made during the quarter in question.
The above limits will be adjusted upward to accommodate new external borrowing that is
made in order to undertake a voluntary early or advance repurchase to the Fund or to the bilateral
sources of support for the exceptional financing package. Should the authorities wish to make any
early or advance repayments to other contributors to the exceptional financing package, they
would make advance repurchases from the Fund on at least a proportional basis.
b. Performance criterion on publicly guaranteed
external debt of the private sector1
|
Ceiling2 (In millions
of US$) |
|
Stock of publicly guaranteed external
debt outstanding |
|
End-December 1999 (preliminary) |
919 |
|
End-September, 2000 (performance
criterion)3 |
1,580 |
End-December, 2000 (performance
criterion) |
1,580 |
1The limit applies to all private external debt guaranteed by the public
sector. The public sector includes the nonfinancial public sector (as defined above), the BCB and
the financial public sector.
2hese ceilings will be adjusted upward for publicly guaranteed external debt that is
actually transferred to or assumed by the private sector in the context of the planned privatizations
of the following public enterprises: CESP, CHESF, Furnas, Comgás, Eletronorte, and
Eletropaulo; the maximum total upward adjustment of the ceiling is limited to US$1,250
million.
3As specified in the fifth review under the SBA (see
EBS/00/82). |
|
For any given quarter, the stock of external debt guaranteed by the public sector
is defined as the stock of external debt guaranteed by the public sector that is outstanding at the
end of the previous quarter, plus the net addition to external debt guaranteed by the public sector
during the quarter in question.
c. Performance criterion on nonfinancial public
sector short-term external debt1
|
Ceiling (In millions of
US$) |
|
Stock of total short-term external debt
of the
nonfinancial public sector as of |
|
End-December 1999 (preliminary) |
3,318 |
|
End-September, 2000 (performance
criterion)2 |
4,700 |
End-December, 2000 (performance
criterion) |
4,000 |
1The data in this table apply to all external debt (disbursed and
outstanding) of the nonfinancial public sector with original maturities of strictly less than one year.
The nonfinancial public sector includes the federal, state, and municipal governments, the public
enterprises, and the social security system. Excluded are any liabilities incurred in the context of
the exceptional financing package, either vis-à-vis the Fund or the bilateral sources of
support.
2As specified in the fifth review of the SBA (EBS/00/82). |
|
Short-term debt is defined as all debt with an original maturity of strictly less than
one year. For any given quarter, the stock of short-term external debt (disbursed and outstanding)
is defined as the stock of short-term external debt (disbursed and outstanding) at the end of the
previous quarter, plus the net flows associated with the disbursements and amortizations of
short-term debt that take place during the quarter in question.
The above limits will be adjusted upward to accommodate new external borrowing that is
made in order to undertake a voluntary early or advance repurchase from the Fund or to the
bilateral sources of support for the exceptional financing package.
d. Performance criterion on net international
reserves (NIR) in the BCB1
|
Floor
(In millions of US$) |
|
Stock net international reserves in the
BCB as of |
|
End-December, 1999
(preliminary)2 |
24,000 |
|
End-September, 2000 (performance
criterion3 |
25,000 |
End-October, 2000 (indicative target) |
25,000 |
End-November, 2000 (performance
criterion) |
25,000 |
End-December, 2000 (performance
criterion) |
25,000 |
1NIR are measured as defined below.
2Measured at constant cross exchange rates and gold prices as specified in
EBS/99/205.
3As specified in the fifth review of the SBA (EBS/00/82). |
|
The NIR in the BCB are equal to the balance-of-payments concept of net
international reserves in the BCB (reservas internacionais líquidas
ajustadas) and include gross official reserves minus gross official liabilities.
Gross official reserves are defined as liquid foreign currency denominated claims in the BCB.
Gross official reserves include (i) monetary claims, (ii) free gold, (iii) holdings of SDRs,
(iv) the reserve position in the IMF, and (v) holdings of fixed income instruments. Items
(i) through (iv) will be valued at the end-period prices shown in Table
3 below. Item (v) will be valued at the purchase price. Gross official reserves will exclude
participation in international financial institutions, the holdings of nonconvertible currencies, and
the holdings of precious metals other than gold.
Gross official liabilities in foreign currencies include (i) foreign currency liabilities with
original maturity of one year or less, (ii) the use of Fund resources extended in the context of the
exceptional financing package, (iii) the use of bilateral credit extended in the context of the
exceptional financing package, and (iv) any forward foreign exchange (FX) liabilities on a net
basis—defined as the long position (posição vendida) minus the short
position (posição comprada)—directly undertaken by the BCB or by
other financial institutions on behalf of the BCB. Items (i) through (iii), will be valued at the prices
shown in Table 3 below.
After June 30, 2000, any increases in foreign currency-denominated claims (both spot and
forward) against residents, or against foreign branches or subsidiaries of Brazilian institutions, do
not count toward NIR in the BCB.
e. Performance criterion on the BCB's exposure in FX futures
markets
The BCB will continue to refrain from entering into FX futures contracts, either directly or
through any institution it uses as its financial agent. This constitutes a performance criterion under
the program.
f. Performance criterion on the BCB's exposure in FX forward
markets
The BCB will continue to refrain from entering into FX forward contracts, either directly or
through any institution it uses as its financial agent. This constitutes a performance criterion under
the program.
3. Monetary Targets
a. Consultation mechanism on the 12-month rate of inflation
The quarterly consultation bands for September-December 2000 around the target for the
12-month rate of inflation in consumer prices (as measured by the Indice de preços ao
consumidor ampliado (IPCA)), remain as specified under the fifth review (EBS/00/82):
Consultation bands for the 12-month rate of change of the
IPCA (in percent)
|
Actual |
Actual |
|
|
|
December |
June |
September |
December |
|
1999 |
2000 |
2000 |
2000 |
|
Outer band (upper limit) |
. . . |
. . . |
8.5 |
8.0 |
Inner band (upper limit) |
. . . |
. . . |
7.5 |
7.0 |
Inflation
target |
8.9 |
6.5 |
6.5 |
6.0 |
Inner band (lower limit) |
. . . |
. . . |
5.5 |
5.0 |
Outer band (lower limit) |
. . . |
. . . |
4.5 |
4.0 |
|
The BCB will discuss with the Fund staff about the appropriate policy response
should the 12-month rate of IPCA inflation exceed the upper limit of the inner band specified in
the table above. Should the 12-month rate of IPCA inflation exceed the upper limit of the outer
band specified above, the authorities will complete a consultation with the Executive Board of the
IMF (henceforth the Board) on their proposed policy response.
III. Structural and Statistical Benchmarks
A. Structural Benchmarks
By end-December 2000
- Issuance of regulations for the implementation of a capital charge related to equity
and commodity risks.
- Substantial progress in implementing the government's privatization plans for the year
2000, including the privatization of BANESPA.
- Development of a new off-site banking supervision system.
- Completion of a revision and upgrade to international standards of the plan of accounts
for financial institutions, the rules for recording and evaluating assets and liabilities of these
institutions, and the reporting to the BCB and the public of the financial statements of financial
institutions.
In 20012
- Definition of a comprehensive strategy for strengthening the federal banks.
- Resolution of most of the state-owned banks to be completed, including the privatization
of the state banks of Amazonas (BEA), Ceará (BEC), Goiás (BEG),
Maranhão (BEM), Piauí (BEP), and Santa Catarina (BESC).
- Implementation of the new off-site banking supervision system.
- On the basis of the new off-site banking supervision system, development of a rating
system for banks that will serve as a basis to determine the frequency of global consolidated
inspections (GCIs).
- Implementation of methodologies and programs to evaluate the performance of the
banks' own internal risk measurement models for analyzing market risk.
The above list of structural benchmarks will be reassessed and amended as necessary during
the scheduled reviews of the program.
B. Statistical Benchmarks
By end-December 2000
- Begin dissemination (with a lag of no more than one week) of monthly data on
international reserves and other foreign currency assets of the central bank, according to the
SDDS template section 1, and in line with practices of all the SDDS subscribers.
- Begin systematic compilation and publication of quarterly statistics on external debt by
creditor and debtor, and projections of external debt service by creditor and debtor, for both
short-term debt and medium- and long-term debt.
- Begin publishing the following fiscal data: monthly "above-the-line" central
government balance data (including the social security system and the results of the central bank),
initially with a two-month lag (utilizing one of the flexibility options of the SDDS); and quarterly
central government debt data with an appropriate breakdown, with a three-month lag.
- Begin regular publication of quarterly national accounts at current and constant prices,
including price and volume indices of the various components of GDP. The publication lag should
be no longer than three months.
The above list of statistical benchmarks will be reassessed and amended as necessary during
the scheduled reviews of the program.
IV. Disclosure of Specific Information
Specific data to be provided by the authorities to the Fund staff include the following (at the
indicated frequencies, and lags):
- Composition of gross international reserves under the cash concept
(posição de caixa) and the liquidity concept
(posição liquidez internacional) (weekly, the following week);
- The levels of gross international reserves and of net international reserves as defined
under the NIR concept (daily, the next business day);
- The BCB's position in FX futures, including notional amounts of open-interest contracts,
both bought and sold, in each contract for the next four months (daily, the next business day if this
position should exceed zero);
- Base money (base monetária); currency issued (papel-moeda
emitido); bank reserves (reservas bancárias); factors determining the
monetary base (fatores condicionantes da base monetária); sources of base money
expansion (base monetária—fontes de expansão) with details;
monetary impact of federal debt titles (impacto monetário com títulos
públicos federais) with details (daily, the next business day);
- Maturity structure (vencimentos) of outstanding federal debt by instrument and
day (bi-weekly, with a one-week lag);
- Outstanding stocks of US$-indexed federal debt by instrument, showing auction values
(preço de lastro) and updated nominal values (valor nominal atualizado),
as well as information on rollovers of these instruments, showing the face value of the amounts
falling due, and new placements of this debt (following each auction, with a one-day lag);
- Results of domestic debt auctions, listing the instruments, the amounts supplied and
demanded, the demand accepted; averages, minimum, and maximum prices and interest rates
achieved in the auctions (weekly, with a lag of one week);
- Individual bank data for the 50 largest banks on their summary balance sheets (monthly,
with a two-month lag);
- Coded individual bank data on foreign currency exposure for the 50 largest banks,
including exposure in off-shore branches and affiliates, dollar-indexed assets and liabilities, and
off-balance sheet positions (monthly, with a two-month lag);
- Quantitative results of the monitoring of the external credit lines of financial institutions
(two business days after the deadline at which these institutions have to comply), and of external
medium- and long-term bank claims on Brazilian nonbank debtors (once a week for the previous
week).
All data will be provided preferably in electronic format; the above list will be reassessed
during future reviews of the program.
V. Program Assumptions for Selected Variables
The following Tables 2 and 3 set out program
assumptions for selected variables.
Table 2. Baseline Assumptions for
Selected Variables |
|
|
Program
Assumptions
|
|
Fifth Review
|
|
Sixth Review
|
|
Jun |
Sep |
|
Dec |
|
2000 |
2000 |
|
2000 |
|
Privatization receipts (cumulative/year)1 |
4,103 |
11,608 |
|
14,784 |
Federal |
2,050 |
8,367 |
|
11,532 |
States and municipalities |
2,053 |
3,241 |
|
3,252 |
Concession revenues (cumulative/year)2 |
1,685 |
5,209 |
|
5,246 |
Recognition of previously unregistered liabilities and PROES
(cumulative/year) |
7,234 |
14,959 |
|
19,532 |
|
1Excluding concession revenues.
2Comprises receipts from the following sources: Telebrás-Celular (Banda A)
(Telesp, TeleSudeste, Telemig, Tele Celular Sul, Tele Centro-Oeste, Tele Norte, Tele Leste, Tele
Nordeste);Telebrás-Fixa (Tele Norte Leste, Tele Centro Sul, Telesp);
Telebrás-Longa Distância (Embratel); mirror companies including Celular Banda B
(Área 1, Área 2, Área 3, Área 4, Área 5, Área 6,
Área 7,Área 8, Área 9, Área 10), Fixa (Norte Leste, Centro Sul,
São Paulo), Longa Distância (Brasil);Agência Nacional do Petróleo
("Bonus assinatura - União: TN", "Aluguel de Área 100%
União:ANP"); railway concessions; federal toll road concessions;
"Distribuidora Sinais Multip.Multic-MMD"; "TV a cabo";
"Outorga Serv. Radiodifusão." This list will be reviewed and revised as
necessary during the seventh review under the arrangement. |
Table 3. Assumptions on
Accounting Exchange Rates and Gold Prices1 |
|
|
Program
Assumptions
|
|
Fifth Review
|
|
Sixth Review
|
|
Jun |
Sep |
|
Dec |
|
2000 |
2000 |
|
2000 |
|
U.S. Dollar (R$/US$)
End of period |
1.750 |
1.750 |
|
1.900 |
Period average |
1.750 |
1.750 |
|
1.900 |
SDR (SDR/US$, end-period) |
1.345 |
1.345 |
|
1.275 |
Gold price (US$/ounce, end-period) |
280.00 |
280.00 |
|
266.00 |
|
1Under the sixth review, currencies not
shown here will first be converted into U.S.dollars using the official rate used by the Fund's
Treasury Department as of October 31, 2000. The accounting exchange rate and gold price
conversion rates for the year 2001 will be determined in the context of future reviews under the
arrangement. |
1Non-US$ debt is first converted into US$
at actual average exchange rates for the period.
2The exact timing of all structural benchmarks in 2001 will be determined during the
seventh review of the program.
|