Brazil must maintain tight interest policies and fiscal discipline, says IMF

Criado em 29/08/13 16h06 e atualizado em 29/08/13 16h08
Por Wellton Máximo Edição:s Fonte:Agência Brasil

Brasília – The International Monetary Fund (IMF) issued report on Wednesday (August 28) in which it recommends that Brazil's Central Bank (“BC”) continues to increase interest rates to curb inflation, no matter the impact of tightening monetary policies on economic growth. The IMF also called on public banks to slow down lending and urged the economics panel to maintain fiscal discipline on state and local levels.

Unlike reports from previous years, it does not include the economic growth outlook for 2013 and the upcoming years, but notes that the country is gradually recovering from the slowdown that began in 2011 and encouraged reforms to boost productivity, competitiveness, and investment.

According to the IMF, the economics panel must adhere to a primary surplus target – saving resources to pay interest on public debt – that can shift the public deficit trend downward. The document also recommends easing budget rigidities to increase public savings.

The IMF advised the Central Bank to maintain the Selic rate (benchmark economic interest rate) on the current increase cycle to help contain end-of-period inflation, which is still close to the upper target limit of 6.5%. Moreover, it found that infrastructure bottlenecks and falling business investment not only put pressure on inflation on the supply side, but also restrains economic growth.

The report does not include any analysis of the effects of the sky-rocketing dollar on Brazilian economy, but it did say that international turbulence and domestic policy uncertainties also contribute to undermine near-term growth expectations. Regarding the exchange market, the IMF also points out that the country has the required tools to deal with changes in international capital flows.

Lastly, the report suggested that the broad credit facilities made available from public banks over the past years may impact public debts by exposing public banking institutions to risk. On the other hand, the document also recognizes that Brazil's banking system is robust and is now well-placed to adhere to the Basel 3 accord, which establishes that credit offerings must be buffered by a solid amount of high-quality capital. According to the IMF, Brazil is positioned to comply with the new rules before the developed countries, where banks are facing difficulties to increase capital limits.

Editors: Nádia Franco / Olga Bardawil
Translation: Mayra Borges