Brazil: Lula and IMF Agree to Renew $14bn Loan Program

Publisher Name: 
Financial Times

The left-leaning government of Luiz Incio Lula da
Silva, Brazil's president, agreed in principle with
the International Monetary Fund on Wednesday to renew
its expiring loan programme by one year.

The $14bn accord announced by both sides in Braslia on
Wednesday is made up of $6bn in fresh
funds as well as an $8bn tranche that remained under
the agreement expiring in December. In addition, about
$5.5bn in Brazil's payments on principal to the IMF
would be delayed in 2005 and 2006.

Brazil would also maintain its target for next year of
a primary budget surplus (excluding debt payments) of
4.25 per cent of gross domestic product.

Antonio Palocci, the finance minister, said on
Wednesday: "The accord is preventative. We do not plan
on drawing on the funds but merely want to have an
insurance policy."

He added that the government's objective was to
"leave" the IMF after this accord. "We are clearly
saying we want to prepare our exit from the agreement
with the fund but we don't want to do it abruptly."

Since taking office in January Mr Lula da Silva has
regained investor confidence with economic austerity
and exceeded IMF targets, sending financial markets to
record highs.

Yet for the governing Workers' party, which had spent
nearly two decades in opposition criticising the IMF,
it was a historic occasion.

Anticipating criticism from his party's leftwing
hardliners, Mr Palocci insisted the programme was
entirely proposed by the government. "The targets are
those already established by the Brazilian

He was backed by Anne Krueger, the IMF's first deputy
managing director, who said "programmes that are not
supported by the countries do not work. In my
judgment, the [Brazilian] authorities are putting
together a sound programme."

Faced with a serious financial crisis during the
election campaign, Mr Lula da Silva endorsed a $30bn
IMF loan negotiated by his predecessor.

The IMF has been praising the economic policies of Mr
Lula da Silva and even said that Brazil's economy was
doing so well it did not require a new accord. "Brazil
is in a very positive circle," Ms Krueger said.

The government has pledged to move ahead with
structural reforms, such as improving access to credit
and lowering bank interest rate spreads - among the
highest in the world.

AMP Section Name:World Financial Institutions