IMF's Fischer Says Brazil Will Achieve IMF's Fiscal Targets
IMF's Fischer Says Brazil Will Achieve IMF's Fiscal Targets
Cambridge, Massachusetts, Jan. 15 (Bloomberg) -- A senior
International Monetary Fund official expressed confidence that
Brazil, which floated its currency today, will achieve the fiscal
targets it agreed to when it accepted an IMF-led economic
bailout.
''Brazil will in fact achieve the targets agreed with the
IMF because they have put compensative measures in place,''
Stanley Fischer, first deputy managing director at the IMF,
without elaborating. He spoke at a Harvard University forum on
Russia.
Fischer's comments came as world stock markets rose after
Brazil scrapped a two-day-old trading band it was defending and
allowed the market to set the value of its currency, the real.
The real fell 12.2 percent to 1.48 after plunging as low as 1.525
to the dollar. Brazilian stocks, which dropped over the last two
days, were up 28.63 percent in recent trading. Bonds also rose,
reversing an early decline.
Though Fischer said it was too early to judge Brazil's
action today, he said exchange rate strategies deserve study. ''A
country with a flexible exchange rate may get hit very hard by
international crises,'' Fischer said. ''It's a very delicate
issue.''
''The question is how actively you can make it more
flexible'' without destabilizing your economy, he said. That
question ''is absolutely top of the agenda'' in IMF discussions
with Brazil, he said.
Brazil's devaluation wasn't part of that country's $41.5
billion IMF-led rescue plan. That plan called for tax increases
and spending cuts to reduce the country's $64 billion budget
deficit in half this year. The full slate of measures has yet to
be approved by Brazil's Congress.
''The failure to implement fiscal policy in Brazil so far
... was not something that was predictable,'' when the IMF agreed
to the plan, Fischer said. ''The difficulties that emerged
subsequently, particularly the most recent difficulty with Minas
Gerais, were not anticipated,'' nor could they reasonably have
been anticipated, he added.
Minas Gerais said last week it had no money to make 78
million reais ($60 million) in monthly payments on 18.5 billion
in reais it owes the central government, scaring investors who
feared other states would balk on payments, too.
'Strong Determination'
Earlier this week, IMF Managing Director Michel Camdessus
said Brazilian authorities had reaffirmed their ''strong
determination'' to carry out the economic reforms the IMF set as
conditions for a $41.5 billion aid package.
The IMF bailout, drawn up in November, was designed to
contain capital flight and shore up investor confidence. The
IMF, which has already disbursed $4.8 billion of the $18 billion
it set aside for Brazil, plans to send a team to the country next
month before deciding on giving more money.
Standard & Poor's said the real's devaluation probably
wouldn't accomplish the government's aim of reducing interest
rates and reviving the economy, which is forecast to shrink as
much as 4 percent this year by private economists.
The New York-based rating company yesterday reduced Brazil's
long-term foreign currency rating one notch to ''B+'' from
''BB-,'' making it the lowest rated country in South America,
along with Argentina.
The IMF's reputation is on the line with its program for
Brazil as Fischer and other finance officials from industrial
nations, including U.S. Treasury Secretary Robert Rubin, said
setting aside $41.5 billion for Brazil -- $37 billion available
in the first 12 months -- would avert global economic instability
and sustain growth in more developed economies.
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