IMF Executive Board finishes Article IV consultation with Brazil
20 Jun '06
4 min read
The authorities have also taken advantage of favorable external conditions to deepen Brazil's domestic financial markets and enhance their integration with global markets, by liberalizing foreign exchange regulations and eliminating the withholding tax on foreign holdings of public securities.
Executive Board Assessment Executive Directors welcomed Brazil's good economic performance, noting the continued economic expansion, the convergence of inflation toward official targets, and the considerable strengthening of the external position. They stressed that vulnerabilities have been reduced, as external debt has been brought down to its lowest ratio to exports in more than 25 years, international reserves built up to more comfortable levels, and the composition of domestic debt improved.
Directors saw these developments as conducive to greater stability and long-run growth. They also welcomed the decline in unemployment and the significant progress made in alleviating poverty and inequality, including through active social policies.
Directors stressed that this favorable performance testifies to the benefits of disciplined macroeconomic management. The maintenance of high primary surpluses has helped to lower public debt, while active asset and liability management has substantially improved its structure, notably by virtually eliminating exchange rate risk from the public sector balance sheet.
The central bank's skillful and resolute approach to monetary policy in the inflation-targeting framework has also played a vital role by anchoring inflation expectations. While near-term prospects are favorable, the rise in global risk aversion toward emerging markets in recent weeks highlights the importance of maintaining a prudent policy framework and continuing to reduce vulnerabilities.
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