MercoPress. South Atlantic News Agency

“Historic day” for Brazil which for the first time becomes IMF creditor

Finance minister Guido Mantega made the announcement of the 10 billion USD contribution to IMF

Brazil became on Monday for the first time ever a creditor of the International Monetary Fund when it formalized a decision to buy 10 billion US dollars worth of IMF notes nominated in SDR.

“This is historic, it’s a radical change, Brazil no longer is a debtor nation, we are now creditors of the IMF”, said Finance minister Guido Mantega after delivering a letter formally confirming the acquisition of IMF bonds.

“Brazil hereby confirms its decision to help increase the resources available to the IMF, as a way to contribute to ensuring the necessary means to effectively respond to the ongoing financial crisis” said the letter addressed to IMF managing director, Dominique Strauss-Kahn.

For Brazil, which has seen sharp improvements in its economy during the past decade as it consolidated public finances and brought inflation under control, the decision marks a big shift, underlined Mantega.

Mantega recalled that back in 2002 Brazil had access to a stand-by fund of 30 billion US dollars in anticipation of possible turbulences and speculation following fears about the victory of Lula da Silva, the former union leader, as president of Brazil.

However Lula da Silva applied a strict orthodox policy, balanced the budget, and by the end of 2005 was no longer in debt with the IMF.

Brazil is also one of the country’s which seems to be recovering faster from the world recession and last Friday received world acknowledgement when Rio do Janeiro was selected to host the 2016 Olympics.

“The subscription of IMF notes is for two years”, said Mantega, adding that it is important Brazil should be investing part of the country’s international reserves, “but this does not mean for Brazil a reduction of funds’ availability: it’s only a change of assets”.

“With these funds the IMF can help poor countries in need of liquidity”, said

Mantega said that BRIC members (Brazil, Russia, India and China) decided to purchase 80 billion US dollars in IMF bonds, China 50 billion and each of the other three, 10 billion USD.

However BRIC countries are requesting that their contributions to the New Arrangements to Borrow, NAB, should be reflected in the IMF decision making process.

The NAB facility with 500 billion USD will enable the IMF to extend loans, more expediently, to countries in difficulties.

If the proportionality is accepted, 80 billion represents 16% of the 500 billion and in practical terms means BRIC countries could have a blocking power.

Last Sunday Strauss-Khan announced the IMF needed a “considerable increase” of resources to help the countries worst hit by the greatest recession since the Great Depression.