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Brazil says spending priorities not IMF's business

BRASILIA: Brazilian officials on Friday blasted an IMF official for suggesting the country should not earmark billions of dollars to combat poverty, saying the IMF had no authority to tell them how to spend their money.

The row erupted after the International Monetary Fund's representative to Brazil, Lorenzo Perez, said in an interview that the use of privatisation proceeds to fight poverty could set a dangerous precedent.

"The IMF should not give advice on our expenditures," Central Bank chief Arminio Fraga said on television Friday.

Brazil received a massive $41.5 billion bailout package from the IMF and other international lenders in 1998 in exchange for an austerity programme intended to reduce the country's huge budget gap.

Legislation on the poverty fund, which would earmark at least $2.3 billion a year to help the country's 24 million poorest, was presented in Congress earlier this week. Brazil has extreme income inequalities and more than half its 165 million people earn less than the $77 monthly minimum wage.

The powerful Senate President Antonio Carlos Magalhaes, who first proposed the poverty fund bill, said Perez "showed he has no competency to hold any office." Magalhaes, a government ally, managed to win broad support in Congress from both left and right-wing parties for his bill.

The Finance Ministry, for its part, said in a statement that Perez's statements "clearly reflect a lack of knowledge about the (anti-poverty) proposal and its importance in facing Brazil's social challenges. Allocation of budget resources is not and never was an issue of discussion with the IMF."

Perez did not return calls to his Brasilia office Friday and the private Agencia Estado news agency reported he had decided not to make any further comments.

The poverty fund bill is only at the very early legislative stages in Congress and could face many changes before finally approved. It proposes financing the $2.3 billion programme with the interest earned on privatisation proceeds and higher luxury taxes.

Perez said in the interview Thursday with Dow Jones Newswires that using privatisation proceeds to fight poverty could change Brazil's policy of using those revenues to pay off debt.

"The danger is that, in the future, one may want to use these privatisation revenues for a different purpose," he said, suggesting the government instead make more efficient use of funds now earmarked for social projects.

President Fernando Henrique Cardoso's government has spent most of its time since first taking power in 1995 introducing tough free market reforms. But it has always said it wanted to do more to alleviate Brazil's social inequalities.

The poverty fund fits in with that policy goal and the government has thrown its full weight behind the idea now that its finances have sharply improved and the budget deficit is falling rapidly.

For once, the government appeared united with the left-wing Workers Party. "This is not the first time that the IMF representative gives orders to Brazil's government. In the name of our people, we demand that the official leave our territory immediately," the largest opposition party said in a statement.-Reuters