Brazil: World Bank Approves US$505 Million To Support Economic Growth Program

WASHINGTON, February 19, 2004 – The World Bank Board of Directors today approved a US$ 505 million First Programmatic Loan for Sustainable and Equitable Growth for Brazil. The loan will strengthen a set of microeconomic measures and institutional reforms for sustainable, broad-based growth, employment generation, and poverty reduction through higher investment and rising productivity. It will also reduce external vulnerability by covering part of Brazil’s external financing requirements and increasing net international reserves.

“A successful program of continued sound economic management, microeconomic and institutional reforms, and implementation of actions in the areas supported by this loan could contribute to Brazil reaching an average annual growth rate of 4 percent,” said Vinod Thomas, World Bank Brazil Country Director.  “Increasing growth is important to provide employment and raise the incomes of the poor, directly reducing poverty.

The loan supports a set of microeconomic and institutional reforms with short, medium and long term impacts:

Reduced logistic costs 

Logistics account for the largest share of the cost of doing business in Brazil. Estimated at 20 percent of GDP, almost twice the proportion in OECD countries, logistic costs represent a third of the operating costs of firms on average and up to half in some industries.

The Government has set the framework to allow for a substantial reduction of logistic costs, which will help increase the price competitiveness of Brazilian products. Key actions will cut customs release times by 40 percent, cut container handling costs in ports by 10 percent, lower road transport costs by about 5 percent, and increase non-road transportation by 10 percent.

An enhanced business environment

Brazil’s business environment has been improved through infrastructure regulation, simplified small and medium enterprise registration and a new corporate insolvency law. Two new regulatory agencies have been created for land- and water-based transportation, and a law on public-private partnerships has been submitted to Congress. 

Further Improvements to the business environment will increase public-private partnership for infrastructure investments, increase domestic competition and consumer choice by means of a sound enforcement of the competition law, halve the time to register a business decreased in selected cities, and increase the speed of resolution and the recovery value of insolvent enterprises under new bankruptcy law.

Improved financial sector efficiency, access, and soundness

Financial sector reforms will reduce bank overheads, increase financial access, reduce credit risk, and accelerate the expansion of the insurance industry. The access of the poor has also been increased by legal changes that simplify the opening of bank accounts. This should lead to an increase of 8 million bank account holders, from 95 million to 103 million people, by 2006.

Increased technological progress and innovation

A new Innovation law will increase technology transfer contracts between universities and the private sector up to 20 percent and increase the private share in research and development (R&D) by 10 percentage points.  Supported improvements in the Clean Development Mechanism will generate US$100 million in carbon credits.

“The reforms of recent years, the commitment of the government, and the microeconomic growth agenda being proposed, all point to strong potential poverty reduction in the next few years. This is not simply wishful thinking: some dividends are already being seen from the government’s serious approach to social policy and economic management,” said Thomas.

This single-tranche fixed-spread IBRD loan in euros (EUR 427.20 million), has a repayment period of 14 years including five years of grace.

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Brazil is among the World Bank's largest IBRD clients with a total lending to date of $30 billion and an outstanding portfolio of $8.4 billion.   The Bank’s current portfolio in Brazil comprises 53 active projects with about $4.7 billion in net commitments.

For more information on the Bank’s work in Brazil, please visit: www.worldbank.org/br

For more information on the First Programmatic Loan for Sustainable and Equitable Growth please click here.

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