BIS INTERVIEW:Brazil Fraga:Lawsuit
May Spur Fiscal Shift
By GONZALO VINA
BASEL -- A labor lawsuit that could end up costing the Brazilian
government as much as 40 billion real ($1=BRR1.805) would probably be
paid for with adjustments to the country's fiscal policy, Brazilian Central
Bank President Arminio Fraga said late Saturday.
"(We can) adjust a lot of the policies that relate to this area, specifically
fiscal policies...But we have a very clear goal of maintaining a healthy fiscal
situation," Fraga said, speaking on the fringes of the Bank for International
Settlements' annual general meeting.
Fraga said BRR40 billion was the upper end of a range of estimates for the
total cost of the lawsuit, brought by civil servants and currently being
considered by the Supreme Court of Brazil, and that the final cost could be
a lot lower.
He said even if the government were to lose, the short-term impact
wouldn't be a great strain on the country's coffers.
"If the government loses, we're going to be looking at liabilities that aren't
cash liabilities - they will be paid over time - and there's a fair amount that
we can do to offset that. So, while we take it seriously, we don't see it as a
life-threatening situation. It's just something that we have to manage."
Fraga refused to comment on the short-term interest rate outlook, or to
reveal his thoughts about the latest economic indicators.
But he did say the central bank is working to reduce the cost of financing
domestic debt and that he expects the maturity of domestic debt will be
able to increase as investor confidence grows.
"We feel that this is a transitionary phase so, for a while, we're going to
have to keep issuing (floating-rate notes) of various kinds, and the increase
in the fixed-rate performers will be gradual. Our long-term goal is to have
longer maturity in the regular yield curve. But the key thing is that we keep
the fiscal situation on track, and it's very clear that that's what we're going
to do," Fraga said.
He said that, for now, it is easier to manage longer-term debt through
floating-rate, dollar-linked or inflation-linked bonds.
But Fraga said the best way to keep financing costs low will be by
maintaining a tight grip on fiscal policy.
"The main part of that effort is really keeping our fiscal house in order.
Fortunately we have now had six quarters of performing according to our
targets; we're looking at keeping that momentum. That will reduce the
uncertainty and the risk of our economy and we think that, over time, real
rates will come down," Fraga said.
He added that Brazil will now build on this and gradually lengthen the
maturity of its debt.
"We've issued one-year, fixed-rate securities, and as time goes by and
confidence builds we should be able to continue lengthening the maturity of
fixed-rate instruments. We started out a year and a quarter ago with
three-month bonds and took it up to a year, and even the floaters were a
lot shorter. We were issuing six-month dollar-linked notes and we're doing
four-year notes now. That's a process, it's gradual, but the trend is clear."
Turning to the legal challenge currently halting the privatization of federally
run bank Banespa, which the central bank is overseeing, Fraga said he will
continue to fight for the sale to go ahead July 18, although he couldn't
guarantee that it would take place by then.
Thursday, a federal court suspended the privatization process, ruling on
behalf of a bank employees' union, and, separately, the Federal Audit
Court is expected to decide this week whether to block the sale process
because of the central bank's failure to submit a required financial report on
Banespa at least two months before the privatization date.
-By Gonzalo Vina; 44 7776 200 925; gonzalo.vina@dowjones.com |
