II - OUTLOOK

 

The New Economic Policy Framework

• Economic policy will be based upon:

• A deepening of the previously announced fiscal consolidation program;
• Adoption of a monetary policy framework based on inflation targets;
• Further progress on the structural transformation of the economy.

The Fiscal Adjustment Program

• The long-term fiscal and structural adjustment measures are complemented by near-term fiscal targets.

FISCAL TARGETS - % OF GDP
TARGET	1999	2000	2001
Primary Result	3.10%	3.25%	3.35%
Net Public Sector Debt	49.3%	47.4%	44.3%

Fiscal Policy

• The targeted primary surpluses are capable of reverting the path of debt/GDP ratio.

Monetary Policy Framework

• Goals:

• Adoption of inflation targeting;
• Institutional efforts toward establishing operational Central Bank independence.

• Immediate action:

• The control of net domestic assets' target.

Structural Policy

• Ongoing progress in the following areas will be furthered:

• Enactment of a Fiscal Responsibility Law;
• Broadening of the privatization program;
• Legislation to implement social security reform and regulate private pension funds;
• Tax reform to revamp the inefficient indirect tax system.

Privatization Proceeds

Privatization Schedule: 1999

R$ million ^{1/ 2/}

Sector	Central Government	State   Government	Concessions	Total
Telecommunications	4,820	-	8,786	13,606
Gas power	-	1,500	196	1,696
Electricity	7,136	2,010	-	9,146
Light, CVRD and Petrobrás3/	10,550	-	-	10,550
Other	1,660	160	224	2,044
Total	24,166	3,670	9,206	37,042

Source: SPE

1/ Cash basis.
2/ IGP - DI + 12%.
3/ Remaining share. For Petrobrás sales of the excess shares required for ownership control.

Output and Inflation Outlook

• Year-end inflation should hover around 16% in 1999, closing the year at annualized single digit level;
• GDP should show a contraction between 3.5% and 4% in 1999, rebounding from midyear and onwards.

Current Account

• The new set of policies will reduce the current account deficit to a level lower than the projected FDI.

US$ million

Itemization	1995	1996	1997	1998	1999f/
Trade balance	-3,767	-5,554	-8,357	-6,430	10,810
Services (net) Interest Other1/	-17,854 -8,096 -9,758	-20,483 -9,173 -11,310	-27,288 -10,390 -16,899	-30,670 -12,096 -18,574	-28,752 -16,269 -12,484
Unilateral transfers	2,699	2,900	2,216	1,905	1,500
Current account	-18,922	-23,136	-33,430	-35,194	-16,443
memo item: Current account (% of GDP)	-2.68	-2.98	-4.16	-4.53	-3.00

f/ Forecast.
1/ Includes reinvested earnings.