Brazil plunges into the most severe recession in its history, said Central Bank (BC) President Ilan Goldfajn, at the annual meeting of the International Monetary Fund in Washington, in the United States.

Goldfajn said that in the last year and a half, the gross domestic product (GDP) dropped 7% and the unemployment rate reached 12%, after standing at 6% in 2013. Moreover, inflation reached 11% at the end of 2015, and is expected to end 2016 slightly above 7%.

"This evolution was equivalent to a supply shock, and the effects of the global slowdown were also maximized by distorted domestic policies. The Brazilian economy suffered a crisis of confidence provoked by fiscal problems," he said.

According to Goldfajn, the deterioration of public accounts raised expectations for gross debt to 80% - 90% of GDP. "In addition, political and not economic events have worsened the situation of lack of confidence. More recently, political uncertainty was reduced and the new administration is moving forward with a broader economic policy agenda," he said.

Policy strategy

Goldfajn said the government is adopting a political strategy that has been proved successful years ago, based on fiscal responsibility, inflation targeting and floating exchange rate regime (with exchange rates set by the market).

The Central Bank president pointed out that the current government has a strong commitment to structural reforms that ensure the sustainability of public debt over time. He cited the constitutional amendment limiting public spending, under deliberation at the National Congress, and noted that the government will also send to Congress a proposal for social security reform soon.

Inflation

The Central Bank president also said that the evolution of prices indicates an ongoing disinflationary process, but the speed of disinflation is still uncertain.

He reiterated that the central bank seeks inflation convergence to target center (4.5%) in 2017, and to keep it stable, which, according to him, will help restore the confidence and economic growth.