The World Bank’s Board of Directors today approved three loans, totaling $1 billion, to support Brazil’s education, energy and financial sectors. The Bank’s Board also discussed a Progress Report on the Bank’s Country Assistance Strategy for Brazil, and approved a Global Environment Facility (GEF) grant for environmental protection and sustainable development of the Guarani aquifer system in Brazil and three other Latin American countries.
“The loans approved today recognize Brazil’s solid record of progress in the three sectors, as well as its efficient management of the internal and external shocks of the past year,” said Vinod Thomas, World Bank Brazil Country Director. “These three loans are directly focused on our objective to help Brazil reduce poverty and inequality and achieve sustainable development.”
Country Assistance Strategy Progress Report
The Country Assistance Strategy progress report discussed today praises Brazil for transforming its macroeconomic environment through a remarkable turnaround in fiscal management and monetary and exchange rate policies, complemented by major policy reforms in the social sectors.
The Government reacted to economic shocks in 2001 with an appropriate mix of monetary and fiscal tightening. In mid-2001, the Government raised its primary surplus target and maintained robustly credible fiscal policies throughout. The actual primary surplus for 2001 reached 3.7 percent of GDP, marking another year with overachievement of the fiscal targets.
The World Bank expects Brazil to maintain the sustainability of its external as well as its public debt. “This assessment is based on our analysis of the fiscal and external financing picture, and the country’s record of effective and credible macroeconomic policies, and proven ability to deal with macroeconomic fluctuations,” said Vinod Thomas.
According to the progress report, Government policies and World Bank support are well aligned with the Millennium Development Goals, which aim to eradicate extreme poverty and hunger, achieve universal primary education, and reduce child mortality, among others. Basic education and health indicators continued to improve, putting Brazil in line with the average of upper middle-income countries.
Using Brazil’s 2000 Census data, the report highlights results achieved in key social indicators such as the drops in: (i) the percentage of children age seven to 14 who are out of school, from 18.2 percent in 1992 to 5.1 percent in 2000; (ii) the illiteracy rate, from 18.3 percent in 1992 to 10.2 percent in 2000; and (iii) infant mortality, from 47.8 per thousand in 1990 to 29.6 per thousand in 2000.
“In these areas of social progress, Brazil registered about the fastest progress in the past ten years, and seems poised for another decade of further improvements in people’s welfare,” added Thomas.
The Millennium Development Goals and Progress in Brazil
Millennium Development Brazil’s Recent Progress
Goals
Goal 1. Eradicate extreme poverty and hunger | Brazil's extreme poverty rate (using the Government’s indigence line, which lies between the international $1-a-day and $2-a-day poverty lines and is different from the poverty line used in recent Bank reports) has fallen from 21.3 percent in 1990 to 14.4 percent in 1999. |
Goal 2. Achieve universal primary education | The percentage of children out of school in Brazil has dropped from 18.2 percent in 1992 to 5.1 percent in 2000 |
Goal 3. Promote gender equality and empower women | In Brazil, women are generally better educated than men. The average education of women is 5.4 years vis-à-vis 5.2 years for men. |
Goal 4. Reduce child mortality | Infant mortality has fallen from 47.8 per thousand in 1990 to 29.6 per thousand in 2000. |
| Goal 5. Improve maternal health
| Prenatal exams by the public health system and gynecological medical consultations have increased rapidly over the last decade. |
Goal 6. Combat HIV/AIDS, malaria and other diseases | Brazil is implementing an innovative and successful program of HIV/AIDS prevention. The contraceptive prevalence rate in Brazil increased from 66 percent in 1986 to 77 percent in 1996. |
Goal 7. Ensure environmental sustainability | Improvements in environmental management are ongoing with Bank support in several areas. |
The report concludes that the World Bank Group’s Country Assistance Strategy for 2000-2003, with its mix of investment lending, adjustment lending and analytical work, remains appropriate and effective to support the country’s long-term strategy and to respond to short-term challenges.
As of end-March 2002, the Bank was supporting 57 active projects in Brazil, totaling $5.7 billion in net commitments. The International Finance Corporation (IFC) approved nine private sector projectsbetween July 2001 and April 2002, totaling $850 million, and the Multilateral Investment Guarantee Agency (MIGA) insured eight projects for a total gross exposure of $470 million.
World Bank Loans Support Key Sectors
$160 million for Education
The $160 million loan supports the Third School Improvement Project (FUNDESCOLA III), the third step in Brazil's ten-year School Improvement Program. The project will help the Government improve Brazil's education performance, focusing assistance in states and municipalities in the country’s poorest regions: the Northeast, North, and Center-West. The project will reduce the educational inequalities in school systems in these regions, and increase the effectiveness of their schools so that all children in these regions can successfully complete the final year of the compulsory cycle.
This single-currency, fixed-spread IBRD loan has a repayment period of 12 years, including five years of grace, and will be disbursed over a period of four and a half years.
$400 million for Financial Sector Reform
The $400 million Second Programmatic Financial Sector Adjustment Loan provides continued support to the comprehensive financial sector reform program pursued by Brazilian authorities. It follows the Bank’s first programmatic financial sector loan in 2001, and supports Brazil’s recently expanded financial sector reform agenda By supporting a strengthened financial system, the loan will help reduce poverty in Brazil by promoting sustainable, sound, crisis-dampening economic growth, while also helping the poor gain access to financial services.
This is a fixed-spread IBRD loan in US dollars with repayment of principal after ten years.
$450 million for Energy Sector Reform
During 2001, Brazil experienced a major electricity supply crisis caused by one of the worst droughts on record. The droughts affected vast areas of the country, failing to refill the large hydroelectric reservoirs on which the country depends. Power supplies were disrupted causing serious economic and social hardship, particularly in the poorest Northeast region. The Government managed the crisis successfully but it brought to light limitations in the organization of the power system in Brazil and the need to address the underlying regulatory weaknesses that were the root of the problem.
The $450 million Energy Sector Reform Loan initiates a medium-term program of Bank assistance to the energy sector. Specifically, the loan will support: (i) introduction of power tariffs that reflect the true costs, (ii) regulatory changes to improve the sector investment climate, (iii) revitalization of the wholesale power market, (iv) institutional improvements in the regulatory framework, (v) regulation to achieve universal access to electricity, and (v) improvements to the environmental management framework of the sector.
The loan approved today will help enhance Brazil’s economic growth prospects by rectifying the problems that continue to afflict the power sector. It is estimated that the energy crisis reduced GDP growth in 2001 by about one percentage point. Recent estimates suggest that in Brazil, each percentage point of economic growth lifts 300,000 people out of poverty.
“This loan is an important part of Brazil’s poverty reduction strategy,” Vinod Thomas said. “By helping address the deficiencies in the current regulatory framework for low-income urban tariffs and rural electrification, it will ensure that both urban and rural poor have access to affordable electricity service.”
This is an IBRD LIBOR-based fixed-spread loan with repayment of principal after ten years.
Environmental Protection and Sustainable Development of the Guarani Aquifer System Project
The $27.24 million Guarani Aquifer System Project, including a $13.4 million Global Environment Facility grant, will assist Argentina, Brazil, Paraguay and Uruguay to jointly elaborate and implement a common institutional and technical framework for the management and preservation of the Guarani Aquifer System. This transboundary aquifer system underlies the four countries and has a total surface extension of 1.2 million square kilometers, constituting a strategic freshwater resource in the southern cone.
The GEF is the largest single source of funding for the global environment. The World Bank is one of GEF’s implementing agencies and plays a key role in managing GEF projects. The projects are financed by $2.25 billion in GEF grants and more than $10 billion in additional funding from public and private partners.
For more information, please visit the Projects website
