IMF's largest loan to the country of the future, Brazil.

South America’s largest country with maximum population, Brazil has been hit by a number of internal and economic crisis, but it did not collapse.

“For so long, Brazil was a nation brimming with potential but held back by politics, both at home and abroad. For so long, it was called a country of the future, told to wait for a better day that was always just around the corner. My friends, that day has finally come. And this is a country of the future no more. The people of Brazil should know that the future has arrived. It is here now. And it’s time to seize it.” Those were the strong and inspiring words of US President Obama during a speech in Rio de Janeiro in March 2011, and rousing applause that followed was proof that Brazilians agreed. Brazil is the country of the future. But when it comes to books, is the situation the same? Are their indeed opportunities for international publishing companies to participate in this gigantic nation’s booming economy?

We are aware of the fact that Brazil is one of the most powerful country in South America in economic terms and thus is leading the other countries in South America. In the global economy Brazil has acquired a strong position as it has large and growing agricultural, mining, manufacturing and service sectors. According to the World Economic Forum, Brazil was the top country in upward evolution of competitiveness in 2009, gaining eight positions among other countries, overcoming Russia for the first time, and partially closing the competitiveness gap with India and China among the BRIC economies. Important steps taken since the 1990s toward fiscal sustainability, as well as measures taken to liberalize and open the economy, have significantly boosted the country’s competitiveness fundamentals, providing a better environment for private-sector development.

Those who have watched financial crises in emerging economies over the past few years would have noticed that there has been a high concentration of financial crises in Latin America. In mid 2002 Brazil’s economy was suffering from persistent fiscal and current account problems due to which the Brazilian economy  was on the verge of a crisis and feared that the economic policies would be significantly altered after the elections. The presidential elections in Brazil in October 2002 had put a great pressure on Brazil’s economy as the left – leaning  candidate would win the elections. The likelihood that Luis Inácio Lula da Silva might win the election caused substantial capital outflows, as markets worried that existing market-friendly economic policies could be overturned. To over come Brazil’s fear of economic decline and being unstable, a stand-by arrangement by International Monetary Fund helped restore confidence, calmed the financial markets and stabilized the Brazilian economy. The loan given by International Monetary Fund to Brazil is the largest ever made by the institution. 

The loan announced by IMF to support the Brazil’s economic and financial program was about $ 30.4 billion. The $30 billion that the IMF lend to Brazil over the next 15 months was in addition to $15 billion that the country received a year ago that was supposed to help prevent its economy from being infected by financial "contagion" from Argentina. Most of the $15 billion loan was already drawn down. The IMF managing director Horst Kohler while making the announcement noted that "the new program will contribute toward ensuring the maintenance of sound economic policies. In this regard, the commitment that the leading presidential candidates has given to the core elements of the program already appears to have helped market confidence. As the next government builds on progress achieved with this macroeconomic policy framework, Brazil could be expected to progressively regain market access."

Lula da Silva’s election victory improved Brazil’s economic and financial situation. The country's new government pursued policies that were both prudent and courageous, combining fiscal and monetary discipline with critical initiatives to relieve poverty. The contribution given  by IMF was basically to restore the confidence so that the new government would have time to put in place its policy framework. Brazil overcame all the challenges coming it’s way in 2002 only through good policymaking and sound choices. This shows that a good political system is one of the most crucial elements to make a claim and important status on the international front as well as bringing one country from rag to riches.

Other countries have received packages that are bigger if bilateral aid from the United States and other wealthy countries is included. But none of them got as much from the IMF as Brazil, and financial markets have often treated pledges of bilateral aid as suspect. Under normal circumstances, Brazil is entitled to borrow only up to about $12 billion from the IMF. Today, the Brazilian economy is reaping the benefits of the continued implementation of strong stabilization and social policies, in the context of a favorable external environment. Real GDP growth is projected to rise from 3¾ percent in 2006 to 4½ percent in 2007. Strong social policies have recently helped place Brazil among the high ranking countries in the UN Human Development Index.


Fizza Kamal (BSS-7)