São Paulo – The International Monetary Fund (IMF) issued a report on the performance of Brazilian economy this Wednesday (2nd). In the "Public Information Notice,” the Fund praises the measures adopted by the country during the crisis of 2008 and the recent containment measures undertaken by the Minister of Finance and the Central Bank to curb the heating of the economy: fight against inflation, withdrawal of fiscal stimulus granted during the crisis, management of capital flows and lowering of the volume of funds allocated to the National Development Bank (BNDES, in the Portuguese acronym). The institution, however, requests the government to implement important reforms.
The document states that Brazil has become more resilient to internal shocks thanks to the solid structuring of the economic policy, and to the control over inflation and the public debt. “The increased macroeconomic stability, combined with well-targeted social policies, has allowed the country to take advantage of favourable external conditions over the past decade to accelerate growth and reduce poverty and inequality to historic lows,” according to the report.
The Fund also claims that capital inflows reached US$ 56 billion in April this year, nearly twice as much as in 2010 and that this is a consequence of favourable economic prospects and “high yields.” The institution observes, however, that the economy still shows signs of economic overheating and suggested that some sectors, in higher risk, need greater monetary tightening. It does not inform, however, what sectors those would be.
The IMF warns of fast-paced growth of credit, which accounted for 20% of the GDP in 2004 and rose to 46% in 2011. Still according to the Fund, the economic authorities have implemented measures to restrain the growth of credit.
In the document, the Fund calls for the country to address what it calls “longstanding cultural rigidities” by undertaking important fiscal reforms. Among these, it cited increasing budget flexibility, reforming the value-added state tax system and implementing the social security reform. “[The IMF] directors noted that measures to improve the business climate and enhance competitiveness would lower structurally high interest rates and boost long-term growth prospects,” claims the report.
The “Public Information Notice” is the result of bilateral debates that the IMF maintains with its member countries. Brazil was the chosen subject matter of the current edition. To elaborate it, IMF directors and technicians visit the country at hand once a year, speak with its economic authorities, collect economic performance figures and devise a report on the country’s performance, and what local authorities can do in order for the economy to grow in sustained fashion.
*Translated by Gabriel Pomerancblum
