Decline of Brazil’s Economy Will Be Less Severe, IMF Says

BRASILIA, Brazil — Brazil’s economy should contract less than expected this year, as moderate inflation and falling interest rates help the economy rebound from a currency devaluation, the International Monetary Fund said Monday.

The economy should decline about 1% this year, better than the forecast of a 3.5% to 4% drop by the IMF and the Brazilian government in March. The economy should grow 4% in 2000.

The inflation rate should also beat early estimates, rising 12% this year, not 17%.

“The impact of the currency devaluation on prices and on the overall economic activity was lower that we expected at the beginning of the year,” said Amaury Bier, executive secretary at the Finance Ministry.

The revised targets underscore how Brazil has recovered from the January currency devaluation, primarily because an already sluggish economy kept inflation in check, helping preserve workers’ wages and paving the way for the central bank to slash interest rates by more than one-half.

The new targets are part of a revised economic program signed by the government with the IMF, ensuring continued loans from a three-year $41.5-billion international aid package. The next payment is expected this month, worth about $2.3 billion, Bier said.

Among other targets set by the IMF, Brazil had agreed to post a budget surplus, before interest payments, of about $17 billion this year, or 3.1% of gross domestic product. This target is unchanged.

The overall budget deficit is expected to fall to about 9% of GDP by year-end from 12% at the end of May.

Foreign direct investment should reach $18 billion this year. The trade surplus should be lower than expected, at $4 billion, down from an estimate of $11 billion, because of low commodity prices.