News Brief No. 02/128

News Brief: IMF Completes First Review of Stand-By Credit with Brazil

December 19, 2002

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Brazil's performance under the SDR 22.8 billion (about US$30.7 billion) Stand-By Arrangement approved on September 6, 2002 (see Press Release No. 02/40). Completion of the review allows Brazil to draw the equivalent of up to SDR 2.28 billion (about US$3.1 billion), of which SDR 1.14 billion (about US$1.5 billion) would be under the Supplemental Reserve Facility (SRF).The balance of SDR 18.26 billion (about US$24.6 billion) under the program will become available in tranches, and following the completion of reviews, throughout 2003.

Following the Executive Board meeting on Brazil, Horst Köhler, Managing Director and Chairman, made the following statement:

"Brazil's performance under its Stand-By Arrangement with the Fund has so far been exemplary, and all performance criteria and structural benchmarks have been achieved. Building on this solid record, and the incoming administration's commitment to maintain the sound fiscal and monetary policies of recent years, the Fund looks forward to a close and productive cooperation with the authorities in implementing their policy agenda in the period ahead.

"Despite a recent improvement in market sentiment, market conditions nevertheless remain difficult. The appointment of a new economic team provides welcome re-assurances about the course of policy next year. The incoming authorities will need to restore confidence, which, in turn, will lay the groundwork for a resumption of output growth in line with Brazil's considerable potential.

"The public sector will need to run primary fiscal surpluses sufficient to achieve a decline of the public debt ratio over the medium term. Timely progress on the authorities plans for pending structural fiscal reforms, including the pension and tax reforms will facilitate the achievement of the requisite surpluses and allow a reorientation of expenditure in line with the new government's priorities to fight poverty and social inequality, which the Fund strongly supports.

"The central bank has responded proactively to the recent increase in inflation and inflation expectations, raising interest rates in October, November and yesterday. The restoration of confidence is expected to lead to a decline in inflation over the next several months. In this context, early progress in the on-going discussion in Brazil for securing of the central bank's operational autonomy will provide important support to enhancing the credibility of monetary policy," Mr. Köhler said.