Edla Lula
Reporter - Agência Brasil

Brasília - On the verge of a decision about a possible new agreement with Brazil, the International Monetary Fund (IMF) characterized the country's fiscal policy in recent years as "exemplary." In its report, "Stabilization and Reform in Latin America: a Macroeconomic Perspective on Experiences since the Beginning of the '90's," released last week in Washington, the institution says that Brazil's fiscal adjustment policy serves as a model for the region.

As examples, the text refers to the Constitutional reforms and the Fiscal Responsibility Act. "The sequence of reforms undertaken by Brazil , including the Fiscal Responsibility Act passed in 2000, speeded up fiscal transparency," the document affirms.

This is the context in which Federal Treasury Secretary, Joaquim Levy, held talks in Washington with Fund experts on Brazil's relationship with the institution starting in March, when the current agreement expires. On Thursday (10), the Minister of Finance, Antônio Palocci, declared once again that Brazil does not need a new agreement. "Our goal is not to withdraw the funds. We don't need to renew the agreement," he said.

Nevertheless, the country intends to use the leverage it acquired from having met the targets set in the agreement, as acknowledged in the IMF document, to win support for proposals espoused by the government since 2003. Levy went to Washington to back the creation of an emergency fund for countries experiencing external shocks.

Another proprosal that is being analyzed calls for excluding government expenditures on infrastructure projects from the spending column in calculating the primary surplus. Governments would thus have more leeway to invest in sanitation and highways, for example.

The agreement due to expire in March represents the extension of a previous one signed in 2002, at the height of the transition period between Administrations. At that juncture, the country was going through a crisis in foreign confidence, sending the country's risk premium up to 2000. The presidential candidates were compelled to sign a document pledging themselves not to violate contracts. The loan endorsed in September, 2002, was for US$ 30 billion.

In 2003, with Minister Palocci at the held of the Ministry of Finance, the Brazilian government and the IMF signed a new contract, this time for US$ 14.8 billion, US$ 6.6 billion in new funds and US$ 8.2 billion corresponding to the final installment of the previous agreement.

Since the announcement of the revised agreement in September, 2003, Palocci has insisted that the government would only utilize the resources in case of an economic crisis. Since the Brazlian economy leaped ahead 5% in 2004 and was able to attain equilibrium, the country kept its promise and did not withdraw any of the installments that were liberated.

Translation: David Silberstein