IMF Praises Brazilian Economy on Visit

By Sarah de Sainte Croix, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – During her first official visit to Brazil last week, Christine Lagarde, Managing Director of the International Monetary Fund (IMF), praised Brazil’s economic policies, saying that the country was in a strong position to ride out the current global economic instability.

Managing Director of the IMF, Christine Lagarde, photo by Marcello Casal Jr/ABr.

“No country can be totally immune to the crisis,” she said in press conference in Brasília last Thursday, “But some are better prepared than others. From our point of view, Brazil is more prepared than any other country.”

In a follow-up statement released by the IMF, she said, “The marked resilience of the Brazilian economy is the product of a strong track record of competent macroeconomic management based on the three pillars of fiscal responsibility, inflation targeting and flexible exchange rate.”

“In the last few years, Brazil has also benefited from a solid and well-capitalized banking sector, which has so far softened the impact of one important channel of contagion from the global financial crisis,” she said.

But she cautioned against complacency, saying, “For Brazil, the challenge is now is to find the right balance between supporting growth and at the same time guiding inflation to converge to the central bank’s target. And do all that while at the same time protecting – and even expanding – its social spending and improving infrastructure.”

Lagarde’s comments came on the same day the government unveiled a raft of new tax breaks and financial measures aimed at boosting consumption and investment in the Brazilian economy, and fending off the effects of the widening global financial crisis.

These measures include reducing the IOF tax on personal loans to 2.5 percent from three percent per year, and reducing the IPI industrial tax on home appliances, making items such as such as stoves, refrigerators and washing machines more affordable.

Christine Lagarde with the Brazilian Finance Minister, Guido Mantega, photo by Marcello Casal Jr/ABr.

They have done away with a tax that was previously levied on pastas, flour and bread, and eliminated the IOF transactions tax on foreign purchases of Brazilian stocks and corporate bonds with maturities of more than four years. They also announced a three percent tax rebate for exporters of industrialized goods.

The measures follow the Brazilian Central Bank’s announcement last Wednesday to cut interest rates for the third time in a row in order to shore up credit amid growing concerns about the crisis in the Euro Zone.

Guido Mantega, Brazil’s Finance Minister, said at a press conference in Brasília, “We won’t allow the global crisis to contaminate the Brazilian economy,” explaining that the new measures are designed to ensure that Brazil’s economy starts the new year with a strong period of growth.

In a meeting between Lagarde and Dilma Rousseff last week, the President is reported to have held firm over her position on lending money to the IMF to support the countries in crisis, reiterating her willingness to contribute money to the cause whilst reaffirming her list of caveats.

“This time, the IMF didn’t come to bring us money, but to ask Brazil to lend money to more advanced countries,” said Mantega, “I prefer to be the creditor than the debtor.”