The 2006 Oxford Analytica (OA) report on Monetary Policy Transparency finds that Brazil has achieved the status of "Compliance in Progress" for this standard. There is a clear legislative and institutional framework within which the roles, responsibilities, and objectives of monetary policy are enunciated and carried out. The National Monetary Council within the Central Bank of Brazil (BCB) has primary monetary policy responsibility. Although the BCB has no clear legislative independence, OA finds that it operates with de facto autonomy. The BCB pursues an active communications program, publishing a broad range of information on the framework, instruments, and targets of its monetary policy and displaying a commitment to transparency. The public has online access to BCB publications, including published minutes of Monetary Policy Committee meetings. The terms of Committee policy discussions are disclosed on the BCB website, including dissenting positions when they occur. The principal remaining transparency issue is the BCB's lack of legal independence, although OA does note that the central bank enjoys de facto autonomy in its conduct of monetary policy.

General Overview

Oxford Analytica's 2006 Monetary Transparency report for Brazil found that the country had achieved the overall status of "Compliance in Progress" (p. 22) with the Code of Good Practices. The core issue in monetary policy transparency centers on the lack of legal independence for the Central Bank of Brazil (BCB). Recent presidential elections and a number of high-profile corruption scandals have eclipsed BCB independence in public debate, but OA considers the subject to be of prime importance to enhancing monetary policy formulation and execution, as well as to improving transparency. OA reports that Brazilian monetary policy is the responsibility of the National Monetary Council (NMC). The council is made up of the Finance Minister, the Planning Minister, and the BCB Governor. According to OA, the council "is the government's most important economic decision-making body and is responsible for general monetary decisions, including setting the headline inflation rate and deciding about foreign exchange and credit policies" (p. 22). Inside the BCB, the Monetary Policy Committee works with the council's headline inflation target to establish short-term interest rates. OA asserts that Brazil's monetary transparency, including the disclosure of policy goals and assessments of success, is consistent with international standards. The BCB makes information available in a timely fashion and public access is convenient. The BCB offers a variety of regular publications on monetary issues, including the Financial Stability Report, the Inflation Report, and a Monthly Bulletin. Copies can be found on the BCB website. The BCB also produces monthly balance sheet reports and a formal Bi-Annual Balance Sheet Report. The latter is presented to Congress in June and December. Its preparation is consistent with the International Accounting Standards Board's International Accounting Standards. The BCB's investor-relations department publishes a Market Expectations Report that covers the short and medium term. The information in this report is developed by outside consultants and analysts. Brazil is a subscriber to the International Monetary Fund's (IMF) Special Data Dissemination Standard, and meets SDDS specifications for the dissemination of its monetary data.

The IMF in its 2008 Public Information Notice (PIN) addressing its concluding remarks on the 2008 Article IV consultations between Brazil and the IMF, made the following observations regarding monetary policy. Overall, monetary policy was commended for contributing to stability and the Board considered that the country' flexible exchange rate system has served Brazil well. Directors did, however, urge the Brazilian authorities to "consider carefully the design and purpose of the Brazilian Sovereign Fund (FSB). They recommended that FSB resources not be used to add directly or indirectly to domestic demand pressures. Directors also considered that the transparency of the operations of the fund would be critical to maintaining confidence in macroeconomic policy, including in the area of foreign exchange operations that need to be closely coordinated with the Central Bank." In the context of the global financial turmoil of 2008, IMF staff had highlighted the need to improve liquidity oversight and lender of-last-resort facilities, and the consultations mentioned that the legal foundations of the Central Bank's lender of last resort facilities are in the process of being strengthened.

The Principles

Clarity of roles, responsibilities and objectives of central banks.

EN

According to the 2006 OA report, Brazil has "Enacted" (p. 23) the principle regarding the clarity of the central bank's roles, responsibilities, and objectives. The laws governing Brazil's monetary policy institutions are twofold: Law No. 4.595 was passed in 1964 and has subsequently been amended, and Decree No. 3.088 was promulgated in 1999. Together this legislation governs the BCB and the National Monetary Council. The Council is the nation's monetary policy decision-making body. It is chaired by the Minister of Finance, who is one of three voting members (the other two are the Minister of Planning and the BCB Governor). The law establishes the two BCB's primary objectives as (1) promoting currency stability, and (2) regulating and overseeing the financial system. In addition, however, the BCB must also regulate the money supply and interest rates as required in order to promote national economic growth. It must develop monetary and exchange rate policy. The BCB's goals and guidelines are published in the government's multi-year plan, one of three documents required for presentation to Congress as part of the overall annual budget documentation. Specifically included in this presentation is what OA calls "a strong commitment to transparency" (p. 23). This explicit statement of commitment is expected to enhance the timeliness, user-friendliness, and quality of monetary information.

While legislation exists that clarifies the BCB's roles, responsibilities, and duties, there is no legal provision for BCB independence. OA asserts that the central bank does enjoy "substantial operational autonomy" (p. 23) however. According to OA, the BCB enjoys a degree of credibility that it earned by its actions in combating the inflationary problems of 1999. In 2003, the Constitution was amended that changed procedural requirements in both the fiscal and monetary systems, and OA suggests that this may have paved the way for future passage of a law formally asserting BCB independence and autonomy. At present, however, the issue remains too controversial within Congress, and there is as yet no clear model for BCB independence. Individual members of the legislature have introduced draft bills touching on the subject, but there is no consensus, and recent events (elections, high-profile corruption scandals) have moved the issue to the back burner for now.

The Brazilian Constitution includes a prohibition against the BCB providing loans to the National Treasury or buying primary issues of federal debt. Provisions of the Fiscal Responsibility Law (FRL) go further, barring the BCB from financing the government's debt by issuing securities. No special interest rate may apply to Treasury accounts held at the BCB, and the BCB is required to report all government credits, advances, or overdrafts. OA reports that the BCB's "only significant involvement... in the rest of the economy is through its control of two commercial banks transferred to the BCB for recapitalization and re-privatization" (p. 24). BCB profit allocation is covered by two laws: the FRL and Provisional Measure 2179-36, which was passed in 2001. BCB assets and liabilities are considered as belonging to the Treasury. BCB operational costs must be reported quarterly as a component of the budget directives laws that constitute a portion of the formal budget documentation. OA reports that the BCB is accorded management responsibility over the Treasury account, although management of external debt is now fully the responsibility of the Treasury. Finally, the BCB serves as the government's representative in the international community.

Open process for formulating and reporting monetary policy decisions.

CP

In its 2006 report, OA asserts that Brazil has achieved a score of "Compliance in Progress" (p. 26) for this principle. OA notes that "the framework, instruments, and targets of monetary policy... are clear and publicly available" (p. 26). Information on the BCB's monetary policy procedures, practices, and available instruments is available for public viewing on the central bank website. The law requires that Brazil pursue inflation targeting, and sets the explicit terms of this regime. The FRL requires that the annual budget documentation include a formal statement of monetary policy, as well as the year's credit and foreign exchange policies and other specific information related to monetary and central bank policy. While currency management is another BCB task, it is not the central bank's primary responsibility. The BCB's success in dealing with the inflation problems of 1999 has contributed to the strong credibility it enjoys, as has its communications efforts and its commitment to transparency. The BCB's foreign exchange operations are also open. The foreign exchange market has moved closer to full liberalization in 2006, when the BCB imposed its Resolution No. 3.265 in response to a recommendation of the National Audit Court. The resolution permits everyone to "buy and transfer dollars or other foreign currencies to other countries, in any amount" and "eliminates all controls on capital flows" (p. 27), as stated by OA. The BCB uses circulars to stipulate its counterparty relationships. These circulars are made available on the BCB website.

According to OA , the BCB's Monetary Policy Committee is the policy-making body within the central bank. The Committee's board of directors is headed by the BCB Governor, who casts the deciding vote when members are split on a particular policy decision. The Committee's structure, practices, and membership are disclosed on the BCB website. Appointment of BCB officials is governed by the provisions of Law No. 4.595, which stipulates that the governor and deputy governors are presidential appointees subject to congressional confirmation. Terms of office are not laid down by law, and there is no legal protocol for removal from office. Such removals can be ordered at the discretion of the president, without congressional involvement. The Monetary Policy Committee's meeting schedule is published in advance on the BCB website. Regular meetings normally occur monthly and are two days in duration. Following a meeting, the minutes are published online, along with a discussion of Committee decisions and dissenting views, if any. OA adds that the BCB's wide array of publications, most available in English as well as Portuguese, offer explanatory notes on many of the monetary policy issues they discuss. The BCB's bi-annual Financial Stability Report includes financial system data along with information on legislative changes and stress scenarios. OA asserts that the Financial Stability Report "has developed into an important reference tool, providing a reliable picture of the position and operations of financial institutions" (p. 28). BCB forecasting is based on analyses developed by its own Economic and Research Departments. The BCB website provides information on the forecasting model and assumptions used, but does not publish all of the modeling variables and parameters. OA reports that there is no law requiring the BCB to hold public hearings or consult with outsiders on potential policy shifts, but the BCB meets regularly with private sector experts nonetheless. As a matter of policy, the BCB actively reaches out to the public for input that might be useful in the formulation or assessment of monetary policy.

Public availability of information on monetary policy.

FC

According to the 2006 OA report on fiscal transparency, Brazil has achieved a score of "Full Compliance" (p. 30) with regard to the public availability of monetary policy information. The IMF's SDDS website discloses that Brazil is an SDDS subscriber and meets specifications for timeliness, coverage, and periodicity in its dissemination of monetary data. Brazil produces advance-release calendars for its data, publishing the schedule on the website and notifying the public of release dates on the BCB website and the central bank's Monthly Bulletin. Preliminary data, such as data on the central bank, are identified as subject to revision. The BCB publishes outlook indicators and time-series data on the balance of payments on its website, as well as data on the financial system and the money supply. The BCB also publishes its balance sheet online. According to OA, "periodicity and comprehensiveness have increased in the past year, and balance sheet information is now available on a monthly basis, including audited revenues and expenditures, income statements, cash flows, and explanatory notes" (p. 30). The BCB releases its Bi-Annual Balance Sheet Report each June and December. This document is presented to Congress for discussion. The Treasury also publishes its spending and revenue data, along with data on public sector borrowing. In addition, the BCB makes available to the public data on foreign assets, federal government credits to non-national government units, private sector credits and credits to the banking industry, and credits to non-banking enterprises. The BCB's Annual Report includes an assessment of Brazil's economic environment, policies, and public finances. Methodological approaches are explained. OA reports that "during the past year , the BCB has adopted the International Accounting Standards issued by the International Accounting Standards Board" (p. 30). Where no standards apply to the Brazilian situation, the BCB has expressed its intent to use international best practices.

Regarding the BCB's role as lender of last resort, OA notes that the central bank follows reporting rules that have been well-established. The BCB does not have a legal mandate to guarantee data confidentiality, but does so in compliance with IMF's SDDS standards. It maintains web presence described by OA as "high quality" (p. 31). The BCB actively pursues a communications policy that is both comprehensive and reliable. It reaches out to the public through surveys that assess the usefulness of its communications venues. Its extensive online publications listing includes regularly scheduled reports, monetary policy methodological notes, forecasts, working papers, the text of addresses made by BCB officials, and press releases. Among the BCB's many publications are the quarterly Inflation Report and Quarterly Monetary Program; the Open Market Report, and the Annual Report. OA finds the design of the BCB website to be user-friendly. The BCB's Market Expectations Report offers forecasts of the macroeconomic environment that have been developed by outside analysts and consultants.

Accountability and assurances of integrity by the central bank.

CP

The 2006 OA report accords Brazil a rating of "Compliance in Progress" (p. 32) for this principle. The FRL obligates the BCB to present to Congress an assessment of its success in meeting its monetary, credit, and foreign exchange policy goals and targets. The presentation is later offered for public scrutiny online. Congress is also provided with a twice-yearly balance sheet report. The BCB Governor also offers scheduled congressional testimony bi-annually. OA suggests that the capability of Congress to provide monetary policy supervision could be strengthened. The Bi-Annual Balance Sheet Report contains the BCB's financial statements, including an audited statement of revenues and spending, a comparison with prior year results, and notes on the methodology used. The BCB financial statement audits are conducted by the National Audit Court and by the Internal Comptroller. Although not required by law, the BCB also calls in the services of an external auditor. In the past, recommendations by the National Audit Court have addressed foreign exchange procedural transparency and issues arising from the BCB's relationships with other financial institutions. The BCB has shown itself responsive to such recommendations.

OA observes that the BCB has no formal ethical charter or code of conduct, but several laws and regulations address the issue of public staff and official conduct. The 1990 Statute for Civil Servants applies to all public employees and includes a section on disciplinary measures. Further penalties are laid out in the Fiscal Crimes Law of 2000, which applies to all government officials. The 1994 Code of Professional Ethics for Federal Public Servants covers similar territory. The text of the 1994 Code is readily available to the public. The problem of conflict of interest, particularly as it pertains to senior government officials involved in the management of the public debt is the subject of a specific Code of Conduct. This Code is implemented by a specially created Public Ethics Commission, but OA finds that this entity "has limited real power" (p. 33). Investigations of violations involving federal funds or assets are carried out by the General Corrector's Office. The BCB created a new Ethics Committee in 2006 that was to formulate an ethical code specific to the BCB. An Ombudsman's Office was also formed recently. According to OA, the principle responsibilities of the Ombudsman's Office "are to protect citizens from potential BCB's abuses and improve its operations with the input of the general public" (p. 33).