Fiscal discipline for Brazil revival

Brazil can bounce back from five years of low growth if it strengthens fiscal and monetary policy and delivers on structural reform, IMF head Christine Lagarde said Friday on a visit to Rio.

South America's largest economy has sputtered after a period of high growth and is forecast to contract by around 1.0 percent this year.

But Lagarde said Brazil could pull out of its slide with a judicious mix of fiscal discipline, a flexible exchange rate and policies that target inflation.

Such an approach, Lagarde said, "constitutes a unique combination to restore growth and put it on a sustainable path."

She said investors must be convinced that Brazil is "solid and serious" about getting its fiscal house in order, anchoring inflation and developing investment and trade.

"We believe that the policy mix that has been identified is the right recipe to actually start a good recovery and establishing sustainable growth," Lagarde said following a policy seminar hosted by Brazil's Central Bank in Rio.

President Dilma Rousseff is attempting to rein in spending while keeping in place social programs that have lifted tens of million from poverty over the past decade, which Lagarde praised as "the pride of Brazil and rightfully so."

Rousseff was due to announce budget cuts of some 70 billion reais ($23 billion) later in the day to put the country on a track toward achieving surpluses of 1.2 percent of GDP this year and 2.0 percent in 2016–17.

Lagarde said having the political courage to hit that target would "bolster credibility in domestic policymaking."
Source: AFP