IMF says Brazil recovering from slowdown, backs more reforms

The International Monetary Fund (IMF) logo is seen at the IMF headquarters building during the 2013 Spring Meeting of the International Monetary Fund and World Bank in Washington, April 18, 2013.

Credit: Reuters/Yuri Gripas

BRASILIA | Wed Aug 28, 2013 4:47pm BST

BRASILIA (Reuters) - Brazil's economy is recovering gradually from the slowdown that began in mid-2011, but more efforts to boost productivity, competitiveness and investment are critical for spurring growth, the International Monetary Fund said on Wednesday.

In a report based on annual consultations with Brazilian economic authorities, the IMF praised Brazil's focus on reforms to ease supply-side constraints, saying it would boost investment and alleviate infrastructure bottlenecks.

Latin America's largest economy, which rode high on a decade-long commodities boom, is in its third year of slow growth that has defied stimulus efforts by President Dilma Rousseff's government through tax breaks and other incentives aimed at spurring industrial output.

"After a protracted period of weakness, investment has begun to recover in recent quarters while business confidence has firmed," the IMF report said.

Low unemployment and hefty real wage gains have kept consumption strong and, with the economy operating at close to potential, supply constraints have held back growth and fuelled inflation, the report said.

The IMF welcomed the initiation of a monetary tightening cycle by Brazil's central bank, which is expected to hike its benchmark Selic rate by another 50 basis points later on Wednesday. The bank started in April an aggressive rate tightening cycle that brought rates from record low of 7.25 percent to 8.50 percent in July.

"In addition to headwinds from external conditions, domestic supply-side constraints and policy uncertainties may be holding back near-term growth," the IMF said.

The IMF said it will be important for Brazil to increase domestic saving, improve the minimum wage indexation mechanism and continue to reform its pension system.

"Other efforts to foster private investment should include streamlining taxation and improving business conditions," it said.

The IMF said Brazil's banking system is sound and well placed to implement Basel III capital requirements ahead of schedule. But it warned that household credit and mortgage loan levels remain risky and warrant vigilance.

Brazil's flexible exchange rate remains the best shock absorber to cushion the country from external financial turbulence, as long interventions in the foreign exchange market are limited to moderating excessive volatility, the IMF said.

In a bold move, the central bank last week launched a $60 billion (38 billion pounds) forex intervention program to ease the depreciation of the real that has lost about 15 percent of its value since May.

(Reporting by Anthony Boadle; Editing by Chizu Nomiyama)

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Greece must press on with reforms despite pain - ECB's Asmussen

Greece's Finance Minister Yannis Stournaras (L) and European Central Bank (ECB) executive board member Joerg Asmussen walk towards to a podium before a news conference in Athens August 21, 2013.

Credit: Reuters/John Kolesidis

ATHENS | Sat Aug 24, 2013 7:28pm BST

ATHENS (Reuters) - Greece can achieve a primary budget surplus this year and growth in 2014 if it sticks to economic reforms, but a return to bond markets will be challenging, European Central Bank Executive Board member Joerg Asmussen told Sunday's To Vima newspaper.

Asmussen was in Athens this week to meet senior government officials and take stock of the economy. His visit was overshadowed by speculation of a new bailout for Greece after comments by German Finance Minister Wolfgang Schaueble.

"Having a low but positive rate of growth next year is achievable, but there must be persistence with reforms," Asmussen told the paper in an interview.

"I understand the difficult political situation and the small parliamentary majority, but what has been achieved with such political pain up to now must not be demolished. What's the credible alternative solution?" he was quoted as saying.

Mired in its sixth straight year of recession, Greece has already been bailed out twice since 2010 with 240 billion euros of loans coordinated by the ECB, European Union and International Monetary Fund.

Athens faces a funding gap of about 11 billion euros in 2014-15 after its current bailout programme ends in the first half of next year and its euro zone partners have pledged additional support until it can tap markets again.

"It is true that the debt level will rise in the next years and a full access to markets will be a challenge," said Asmussen.

But he said speculation of a third rescue package was premature.

"Repeated talk of a debt reduction, a haircut, does not help. It distracts the attention of all stakeholders from what needs to be done under the current adjustment programme. We must make this programme work," he told the paper.

He said the part of the bailout that dealt with the recapitalisation of Greece's top four banks was a success, helping to restore financial stability, with funds left over at the bank bailout fund as a cushion for any future needs.

Asmussen told the paper complacency and reform fatigue were the biggest risk to an improving European economy.

"The biggest risk to the positive trend I see shaping up is not doing enough, believing that markets are calm or that we are in safe waters," he said.

(Reporting by George Georgiopoulos; editing by Tom Pfeiffer)

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