The Brazilian government questioned as outdated the latest IMF report, released Friday July 20, in which the Fund calls for more domestic savings and greater attention to inflation.
The head of the Central bank’s Corporate risks Luiz Awazu Pereira da Silva said the report was based on data collected previous to May, and even when “it is quite positive and corroborates the bank’s analysis” the warnings of the IMF are being addressed by the government.
The IMF report says Brazil must move from a growth model based on consumption to one which increases domestic savings, and at the same time to ensure that inflation keeps to the target of 4.5%, besides alerting on the issue of families’ growing indebtedness and credit expansion.
Even when the IMF approved the strong reaction from the government to the crisis, “the results are the expansion of credit and a significant reduction in the basic interest rate, or Selic”.
Pereira da Silva focuses his attention on the period after the IMF fact finding mission was in Brazil (from May 7 to 22) and argues that the market consensus in Brazil now is that inflation is heading down to the 4.5% target, “something which at the time was not that obvious”.
The central bank official adds that the Brazilian government is working to adjust fiscal and monetary policies, gradually, from a consumption focus to the increase of savings. But such changes are not possible overnight.
“Brazil is transforming in a positive way since it is growing with social inclusion”, he emphasized.
The Brazilian growth model involves an “enormous effort” to favour investment such as the PAC (Program for the Acceleration of Growth), a review of the taxing system, a reform of social security and awarding ports and airports concessions.
The expansion of credit and the growth of insolvency are attenuated risks: credit is growing at a more moderate rate and besides “other countries” have difficulties in understanding the increase of credit in Brazil.
“They tend to forget that credit expansion in Brazil has a structural side. We are going through now what other countries experienced in the fifties”.
This greater financial supply tool is to cater the 35 million Brazilians that have climbed to the middle class in recent years and are demanding more financial services.
“It is good for credit to grow. And that is happening in a responsible way. The central bank closely monitors families’ debt levels and payments to ensure that the process is virtuous”.
The indebtedness of families, another concern of the IMF, is in the range of 30% of GDP, compared to rates far higher in other countries.
“Nobody wants an explosion of debt so the ratio jumps to 200% of GDP”, and regarding insolvency, “credit is being awarded with much more precaution, in a more solid process of the economy’s recovery” concludes the Brazilian government position regarding the latest IMF report.