The 2005 Survey argued that the foundations for sustained economic growth were by and large in place. This assessment remains valid. The macroeconomic environment continues to improve: fiscal policy has stayed on track; the public debt-to-GDP ratio has trended down since 2003, although it remains comparatively high by emerging-market standards; and inflation has been tame at its lowest level since the adoption of inflation targeting in 1999 and well anchored around the current target of 4.5%. Ongoing external adjustment is making the economy increasingly resilient to external shocks, and asset prices are performing well in the face of the current tightening of global liquidity. Efforts to reduce external vulnerability, particularly with respect to public external indebtedness, are paying off: Brazil’s sovereign credit has been upgraded, and interest premia are at historically low levels. The outlook for inflation and growth remains benign. At the same time, income inequality, which is high in Brazil, is coming down as a result of rising earnings and the successful implementation to date of targeted income support initiatives for the poor under the Bolsa Família programme. Continuous growth is the key to maintaining progress on this front. But there are some macroeconomic and structural problems, which, unless addressed, will continue to act as a drag on growth, preventing Brazil from reaping the full benefits of macroeconomic stabilisation. Against this background, the overarching medium-term policy objective for Brazil is to raise the economy’s growth potential so as to close the gap in income per capita with the OECD area, which has widened since the 1980s.