The president of Brazil’s central bank is putting on a brave face in the aftermath of the recent political turmoil. With $61 billion in reserves and market inflation expectations converging toward the government’s 4.5% target, Henrique Meirelles is convinced that a major breakthrough has been achieved. “We have remained on target,” he told a meeting of the Institute of International Finance yesterday. “Portfolio managers can be confident that we will be on target for the next 10 years”.
Despite being derided as ultra conservative and too restrictive on the monetary side by many local industrial leaders, Meirelles argued that his policy would prepare the ground for sustainable economic growth. “GDP growth will average 3.7% between 2004 and 2006, which is more than twice as much as the average of the past 10 years,” he said. “It gives Brazil conditions to continue to grow on a sustainable basis for the first time for many, many decades.”
Given the situation of the economy in the run up to the previous elections four years ago, this turnaround is a real “tour de force”, according to IIF chief Charles Dallara, who also called Meirelles “a damn good central banker”.
“It took considerable courage for Meirelles to follow such a tough monetary policy,” said Dallara who highlighted the dramatic improvement in Brazil. “But they still have a lot more to do on the reform front. And that’s a challenge for Brazil moving ahead. Chances of new steps in the next months are not likely, but whoever wins in October, I hope we’ll see renewed emphasis on institution building and structural reforms in years ahead,” he added.
Meanwhile, Brazil’s finance ministry’s secretary for international affairs, Luiz Awazu Pereira, ruled out any change of course in economic policy, following the resignation of Antonio Palocci.
“This is a serious undertaking from the Brazilian government that the policies are here to stay and the results are going to get better,” Pereira said. Nevertheless, he has not displayed any great enthusiasm to resume structural reforms either. “We have set the economy on a higher growth path, maybe not 7%, but certainly well placed to reach 4.5% in 2006 as [new finance] minister Guido Mantega said.”