Press Release No. 04/118

Press Release: IMF Executive Board Completes Seventh Review of Brazil's Stand-By Arrangement

June 18, 2004

The Executive Board of the International Monetary Fund (IMF) today completed the seventh review of Brazil's performance under an SDR 27.4 billion (about US$ 40.1 billion) Stand-By Arrangement (see Press Releases No. 03/217 and No. 02/40).

Completion of the seventh review enables the release of a further amount equivalent to SDR 911 million (about US$1.3 billion) to Brazil. However, the Brazilian authorities have indicated that they do not intend to make any further drawings since they are treating the current arrangement as precautionary. Total disbursements under the Stand-By have amounted to SDR 17.2 billion (about US$25.2 billion).

Following the Executive Board's discussion of Brazil's economic performance, Anne Krueger, First Deputy Managing Director and Acting Chair, made the following statement:

"Brazil's performance under the Stand-By Arrangement continues to be strong. All performance criteria for the seventh review were met and the structural benchmarks have been completed. The Brazilian authorities continue to treat the program as precautionary.

"After two consecutive quarters with annualized growth rates of around six percent, the recovery in economic activity is now firmly established. Export performance continues to be impressive, and domestic demand is gaining strength as well. Real wages and private consumption are picking up, broadening the base of the recovery.

"The government's sound policies have contributed to increase international reserves, helped improve the composition of public debt, and fostered a swing in the external current account. These accomplishments are helping to limit the impact of increased uncertainty and recent volatility in international financial markets on Brazil.

"The conduct of fiscal and monetary policy remains commendable. The government's commitment to prudent fiscal policy will help ensure that the debt-to-GDP ratio stays on a declining path. Within this fiscal framework, the government's focus on modernizing Brazil's infrastructure and implementing a prudent mechanism for private-public partnerships-which preserves debt sustainability-should help increase growth. Brazil's participation with the Fund on a pilot program on public investment will also help define policies in this area. The conduct of monetary policy has been appropriately cautious in light of recent uncertainties, solidifying the credibility of the monetary authorities and maintaining inflation on a path toward the government's goals.

"Further structural reforms will be important to sustain growth and increase Brazil's growth potential. The government's efforts to foster financial intermediation, and improve the business environment are positive steps in this regard. Initiatives to reduce the degree of informality will also help promoting productivity growth. Such policies, combined with an expansion of targeted assistance to alleviate poverty, will help pave the way for an expansion of economic opportunities for millions of Brazilians,"Ms. Krueger said.