Brazil has won international support for its reform programme. A $41.5 billion loan is being made available over three years; $37 billion to be used, if necessary, in the first 12 months. Of the total amount, $18 billion is being secured by the IMF, $4.5 billion by the World Bank, $4.5 billion by the Inter-American Development Bank and $14.5 billion by a pool of 20 countries, including a contribution of $5 billion from the US. In return, Brazil is committed to attaining budget surpluses, before interest, of 2.6% of GDP in 1999, 2.8% in 2000 and 3% in 2001. The government aims to achieve this by implementing a programme described in a memorandum, which makes clear that the present exchange rate policy will remain unchanged to secure a low inflation rate. Brazilian domestic interest rates will be kept at about 20% in 1999. About $9 billion should be disbursed when the IMF approves the memorandum in a couple of weeks. Another instalment of about $9 billion would be available in February 1999 if the IMF is satisfied with the implementation of the programme. The programme includes:
- administrative reform — the government is proposing legislation to reduce public expenditure in line with the constitutional amendment approved in March 1998; and
- social security reform — on November 4 1998, the Lower House of Congress approved in the final round of voting a constitutional amendment, by which retirement based on length of service will no longer apply. For men, the minimum retirement age is 53 with 30 years of social security contributions, while for women it is 48 with 25 years of contributions. Further legislation will be submitted to Congress in the first quarter of 1999. This will aim at an actuarial equilibrium, where each worker would contribute during his or her working life and would receive retirement benefits proportional to the amounts contributed. Under the proposal, the value of the benefit would no longer be calculated over the average of the last 36 months of contributions, but would be calculated by the average over the whole contribution period.
The Brazilian finance minister has now begun a road show to explain the whole programme to private international banks, persuading them not to cut trade financing. The government hopes to shortly re-start placing public bonds abroad to raise capital and open up the market for private initiative.
Eliana Maria Filippozzi