UDPATE 1-IMF optimistic about Brazil, economy on track

www.forbes.com Reuters, 01.28.03, 2:31 PM ET By Mark Egan

WASHINGTON, Jan 28 (Reuters) - The International Monetary Fund on Tuesday gave Brazil's economic performance a resounding endorsement, saying there was every reason for optimism as long as the nation stayed the pace of economic reforms.

In a statement released on the lender's web site after IMF Managing Director Horst Koehler met Brazilian President Luis Inacio Lula da Silva in Paris, the fund said it was encouraged by recent strengthening in market confidence toward Brazil and that its economy was on track for recovery.

"We were encouraged by the general improvements in market confidence toward Brazil over recent months, driven by a wider appreciation that sound economic policies will be maintained in Brazil," IMF chief Koehler said.

"Of course, the global environment remains challenging and we agreed, therefore, to keep in close touch, as the IMF continues to support Brazil's efforts to emerge from its temporary difficulties," Koehler said.

Koehler said Brazil's economic program, backed by a $30.7 billion IMF loan, "is on track," saying: "There is every reason for optimism that a basis for sustained economic growth and social progress is being established in Brazil."

Koehler said his discussions with Lula and Finance Minister Antonio Palocci encompassed the global market environment, developments in Latin America and the situation in Brazil. The IMF chief said he was impressed by Lula's vision for speeding up economic activity in Brazil while improving social equity.

Koehler said the new Brazilian president told him that reforms aimed at bolstering Brazil's continuing recovery would be carried out in the coming weeks and months.

"Maintaining fiscal sustainability by progressive structural reforms will lie at the heart of macroeconomic policy," Koehler said. In December, the IMF gave Brazil's economy a positive bill of health, freeing up a $3.1 billion payment under the nation's massive loan, inked in September of last year.

That loan was aimed squarely at assuaging market jitters, which hammered the nation's currency ahead of November's presidential elections. Before the election, markets had feared that if leftist Lula was elected, he might abandon IMF reforms and undermine the Latin American economy by running up government spending on social programs.

With that in mind, the IMF structured its loan to make the bulk of the payments available only if Lula stayed the course of reforms during 2003.

The latest IMF endorsement came as a new poll released in Brazil showed that 78.4 percent of Brazilians expect the new government to do a good job.

Lula, a one-time radical union boss who became Brazil's first working-class president, was elected in a landslide on Oct. 27, winning the most votes ever in Brazilian history thanks to his promises to create jobs and wipe out hunger.