Lagarde: "Brazil is clearly on the right track"

Cristina Indio do Brasil - Reporter for Agência Brasil

The Managing Director of the International Monetary Fund (IMF), Christine Lagarde, said today (22) that Brazil is acting correctly by adopting measures of fiscal responsibility, flexible exchange rates and the inflation target. For her, these are the main macroeconomic pillars adopted by the country in the last 15 years and that have worked.

According to her, the country obtained "important benefits by sustaining high growth rates and stabilizing inflation." Christine Lagarde added that this "happened while the country reduced public debt, accumulated international reserves, and lifted millions of people out of poverty." The IMF Managing Director participated in the second day of the 17th Annual Inflation Targeting Seminar, organized by the Central Bank, in Rio de Janeiro.

Lagarde highlighted that administered prices are being readjusted. According to her, even though it is an important measure, it has the side effect of increasing inflationary pressures. "To prevent changes in these relative prices from affecting market expectations in the medium term, monetary policy has rightly adopted a more restrictive stance since the end of last year," she assessed.

Christine highlighted that there are signs that this policy is having an effect, despite inflation remaining high in 2015 due to adjustments in relative prices. "The expectation is that [inflation] will fall below the upper limit of the target in 2016, continuing to converge towards the center of the target."

The IMF director acknowledged that the situation in Brazil and Latin America is difficult, mainly due to the prospect of rising interest rates in the United States, but believes that the Federal Reserve (FED), the American Central Bank, may provide a clear signal of its measures, which would alleviate the impact on other economies.

"The prospect of normalization of US monetary policy is not a central element of our forecasts, but it could create market volatility, with broader implications for the global economy. Effective and consistent communication from the Fed will help signal future policy decisions and mitigate potential abrupt movements in asset prices," said Christine Lagarde.

She added that the IMF's estimate for Brazil is a 1% contraction in 2015 and a modest recovery next year. The director pointed to three areas that need to be addressed by Brazil: infrastructure development, increased private sector participation, and reduced costs for businesses in the country.

"The Brazilian tax system is characterized by a complex set of indirect taxes, including at the state and municipal levels. This generates high compliance costs for taxpayers," said the IMF representative.

The IMF executive once again praised Brazilian social programs such as Bolsa Família and Brasil sem Miséria. She also highlighted vaccination campaigns and the empowerment of women in Brazilian society. "I was very impressed by something I didn't know so well until yesterday: the effort to empower women, including through training so they can become independent and successful entrepreneurs in their communities."