Congressional support key to Brazil fiscal plan
Reuters, Thursday, October 15, 1998 at 20:34
By Joelle Diderich
BRASILIA, Oct 15 (Reuters) - Brazilian President Fernando
Henrique Cardoso will have to seek Congressional support for a
large chunk of the belt-tightening measures the government is
preparing to stave off a stinging devaluation, economists said
Thursday.
Latin American markets were treading water as all eyes
turned to Brazil and a widely expected package of fiscal
measures aimed at tackling the root of its economic woes -- a
budget deficit of around 7 percent of gross domestic product
(GDP).
But foreign investors expecting some deft budget-slashing
may be disappointed, analysts warned. Brazil's fate largely
depends on the goodwill of lawmakers, many of whom will be out
of Congress by early next year after failing to win re-election
two weeks ago.
"There is no doubt that (Cardoso) will have to ask
Congress's approval for a substantial part of the measures,"
said Marcelo Allain, economist at BMC Bank in Sao Paulo.
The government will have to save or raise through tax
increases at least 23 billion reais ($19.5 billion) to meet its
target of producing a primary budget surplus, excluding debt
costs, of between 2.5 percent and 3 percent of GDP in 1999.
Cardoso has told his economic team he wants a three-year
fiscal adjustment plan to be ready by Oct. 20, clearing the way
for the announcement of a financial aid package from the
International Monetary Fund and other global lenders.
But the government is seen releasing only dribs and drabs
until a second round of state-level elections on Oct. 25.
"Nobody is crazy enough to announce a tax increase before
an election," said Luciano Dias, political analyst with Goes e
Consultores in Brasilia. "They will try to win over a maximum
of public opinion by phasing in the measures."
Cardoso can cut costs either by presidential decree, by
introducing new bills, or via longer-term reforms of the civil
service and pension, tax and political systems, many of which
have been lingering in Congress for years.
Economists said most of the changes they expect the
government to propose -- including wider federal power over
receipts and changes to social security contributions -- must
be cleared by Congress before they can take effect.
"Even short-term measures will depend on the approval of
Congress," said Jose Carlos de Faria, senior economist at ING
Bank in Sao Paulo. "The market is already aware that it is
going to be difficult."
The onus is on speed after the Oct. 4 general elections
left Cardoso's Brazilian Social Democratic Party and its allies
with a slightly lower majority of 379 seats in the new
Congress, due to take power early next year, from 393 seats
now.
The president was due to meet leaders of government-allied
parties on Oct. 21 to secure backing for the fiscal steps,
Liberal Front Party leader Inocencio Oliveira said Thursday.
The austerity measures could be presented to Congress on
Oct. 26, when the government is also due to submit a new,
reduced version of the federal budget, Congressional officials
said.
"This time the sense of urgency is much greater," said
Allain. "The current Congress should approve measures more
easily, so the government will have to push through measures by
the end of the year."
Deputies who have not been re-elected may have to be
sweetened with promises of future jobs, analysts said.
"The government has to console the defeated, (offer) some
political horizon in local or federal government," said Dias.
He said most lawmakers were currently in the curious
position of being asked to back measures which have yet to be
detailed, noting: "It's a bit as if the executive wanted a
blank check."
joelle.diderich@reuters.com))
Copyright 1998, Reuters News Service |
