IMF says Brazilian economy stabilizes and has potential to grow

20 June 2006

Washington, USA, 20 June – The International Monetary Fund (IMF) applauded the performance of the Brazilian economy this week, which it said had stabilized and had greater potential for growth, but called on the government to move ahead with tax and administration reforms.

In an evaluation report on its Brazilian program, published Monday, the IMF said that for the country’s economy to fulfil its potential, the “most important challenge” it had to face, the authorities must carry out “an ambitious set of structural reforms.”

This, it said, would require making financial intermediation more flexible, opening up of markets and in order to strengthen the economic climate, as well as maintaining macro-economic stability, reviewing the tax incentive system and increase the efficiency of the public sector.

“A combination of policies like this one would help to lower interest rates and ensure conditions that are conducive to greater growth of productivity and investment, marking the rhythm for continued progress in reducing poverty and inequality of income,” said the IMF Board.

According to the Board, “although per capita income has recovered, and is now in more stable territory, Brazil can do much better.”

In the last few years, it added, the largest economy in Latin America, “reduced its vulnerability,” thanks “to the reduction of external debt to the lowest export ration in the last 25 years, comfortable foreign reserve levels and improved make up of domestic debt.”

The IMF forecasts for this year economic growth of 3.5 percent, 1.2 percentage points over the growth registered last year, with investment at a high of 6.1 percent and consumer demand increasing by 4.3 percent.

“This favorable performance is testimony to the benefits of well-disciplined macro-economic management. Despite short-term projections being favorable, the increase in the global aversion to risk in relation to emerging markets underlines the importance of maintaining a prudent policy framework and continued reduction of vulnerability,” the IMF warned. (macauhub)