Directors discussed the policy issues associated with Brazil's strong external position. They noted that the real appreciation of the real over the past year mainly reflected the strong macroeconomic fundamentals and current account performance. Directors generally supported the authorities' pragmatic response to the recent large foreign exchange inflows—taking advantage of a favorable external position to build international reserves and to reduce external debt, while allowing the currency to move in response to market conditions.
At the same time, some Directors considered that the quasi-fiscal costs of sterilized intervention imposed limits on further reserve accumulation. Directors also stressed that the authorities should continue to look for opportunities to liberalize external trade and foreign exchange market regulations, which would encourage the continued integration of the Brazilian economy with the world economy.
Directors considered unlocking Brazil's growth potential to be the most important challenge. While per capita growth has recovered and is now on a more solid footing, Brazil can do much better. Directors believed that boosting medium-term growth prospects will require consolidating macroeconomic stability, by solidifying the institutional underpinnings of policies, improving the efficiency of the public sector, and further strengthening the public sector balance sheet.
International Monetary Fund
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