After years of fighting the IMF, Lula turns Brazil into the best client of the Fund
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Source: Rede Brasil
Tue Dec 20 2005

The current news that the Brazilian government has decided to make an advance on the 2006-2007 debt service to the IMF, has given rise to various hypotheses about the new strategies of President Lula and his economic team.

One of the major social mobilization banners carried on several occasions by President Lula was precisely the end of dependency on the IMF. For those who do not remember, in 1983 Lula said that Brazil could not yield to the demands of international bankers; in 1987, Lula himself claimed to be against debt payment.

It is this fact that makes it ever so odd that the President has now decided to pay, at end-2005, US$ 15.4 billion (this not being the first time that Brazil anticipates payment – in July, US$ 5.1 billion were paid in advance).

Next year being an election year, some analysts (as the media have pointed out) defend the idea that this action is part of a new electoral strategy. It appears that the slogan for the reelection campaign might be something like “For the first time in 8 years, Brazil is free from the IMF”. This sounds a little inconsistent compared to previous campaigns and could be used as a basis for comparison since the FHC Administration resorted to the Fund on three occasions, which turned Brazil into the main IMF debtor. It must be clearly understood, however, that this decision will not result in Brazil having formal autonomy with regard to the Fund.

Payment can also be seen as a way of refuting criticism against the economic policy, demonstrating a supposed success of current government’s strategies. This may please the government’s orthodox followers as well as its social basis. In this sense, the action has been seen by some as a sign of “good economic bases”, sound external accounts, it is important for increasing international credibility and may bring about cost reduction for the Treasury.

It is important to think about what payment represents, not only in terms of a political party’s ideological contradictions or “making a good impression internationally” but, mainly, taking into account the fact that said payment will not bring about a change in the relationship between Brazil and the IMF, it will not result in autonomy.

The government has decided to pay without complying with the constitutional provision of carrying out an audit on the debt. As a result of this, the actual situation, the settlement of the debt, takes place without any previous assessment of the values and estimates of indebtedness. In this way, a debt which has repeatedly been paid off, is legitimized, and frees the IMF from assuming responsibilities that are historically theirs as a consequence of loans which have always been used for fostering the debt financial circle and favouring the financial capital while having a negative impact on the population.

This iniciative is also part of the IMF’s policy which currently aims at making major “debtors”, such as Brazil and Argentina, pay up their debts since the Bush Administration is against placing any more money on the Fund.

In spite of the decision, Brazil continues to be fragile, with a vulnerable economy – over the current year the country recorded a below-average growth compared to emerging countries, and an expansion of nearly 3% is expected for 2006, which is insufficient.

According to a statement released by the Finance Ministry, they will continue to be on good terms with the Fund and they will keep developing joint projects – admitting the IMF’s participation beyond its financing role. The IMF representative in Brazil, Max Alberto Alier, agrees with the statement of the Finance Ministry; he also praises the initiative and compares the country with a company which takes advantage of the dollar downfall to clear its debts. Being an issue traditionally criticized by the PT, the Fund’s political interventions on Brazil will continue to take place.

And let us not forget that indebtedness to other institutions, such as the World Bank and the Inter-American Development Bank, continues to exist.

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