São Paulo – The 7.5% growth of the Brazilian economy in 2010, the highest rate in 25 years, goes to show the cautious economic management throughout the last decade has raised the Brazilian economic resistance to external shock. The recovery of the country’s economy was impressive.
This is the assessment of the managing director of the International Monetary Fund (IMF), Dominique Strauss-Kahn, who kept several appointments this Thursday (3rd) in Brasília, including meetings with the chairman of the Central Bank, Alexandre Tombini, the minister of Finance, Guido Mantega, and president Dilma Rousseff.
In a statement to the press, Strauss-Kahn also claimed that the IMF supports the emphasis that president Rousseff’s administration places on the continuation of poverty reduction in Brazil.
According to him, over the course of the last decade, significant progress was made in the field, linked with a striking expansion of the middle class. "To know that Bolsa Família is being copied in many countries, including the United States speaks volumes about the program’s positive social impact and macroeconomic solidity," he said.
Pillars of resistance
Regarding the Brazilian economy’s capacity to resist, the IMF director claimed that it is mostly based on three pillars, namely fiscal responsibility, inflation targeting policy and a floating exchange rate, as well as the skilful use of countercyclical policies during the crisis.
"A relatively favorable international environment, particularly ample international liquidity and high commodity prices, meant Brazil was able to effectively contain the negative effects of the crisis," said Strauss- Kahn.
However, he reckons that the success of the last few years ushers in new challenges. To the IMF’s managing director, in the short term, it will be important to set an appropriate policy mix in order to contain inflationary pressures and ensure sustainable economic growth in the medium term, while managing the challenges associated with large capital inflows.
Challenge
To Strauss-Kahn, the main challenge facing Brazil in the medium term is to increase its potential for economic growth and continue moving towards reducing poverty and inequality, so that the current prosperity will lay the foundation for sustained economic growth that will benefit future generations and help more and more Brazilians to rise above poverty.
He underscored four areas in which the country could make significant progress: 1) tax reform, to boost investment and growth; 2) reduction of budget rigidity to help improve the management of public finance; 3) social security reform, to ensure long-term sustainability of the regime and create greater incentives for private savings; and 4) improving the business environment, to support Brazil’s plans to boost the potential growth of the economy.
To him, given the still challenging external scenario, it will be it will be crucial that Brazil continues to play a key role in the international arena, particularly in the G-20. The director of the IMF believes that ongoing international cooperation is a must in order to solve global imbalances (such as large and volatile capital flows and pressures on exchange rates), prevent future crises and keeping countries from taking isolated measures that may harm global recovery. "It would be particularly important to resist trade protectionism measures," he asserted.
*Translated by Gabriel Pomerancblum
