Brazil's Govt Set To Unveil Budget Cut By End Of July
By ANTHONY DOVKANTS
July 20, 2001
Of DOW JONES NEWSWIRES
SAO PAULO -- The Brazilian government plans to announce by the end of the month its second cut to the 2001 budget so far this year, a government official told Dow Jones Newswires Friday.
Finance Minister Pedro Malan and Minister of Planning Martus Tavares are scheduled to unveil the reduction in spending July 30.
"The size of the cut isn't yet defined, the government is still studying the matter," said Ana Teresa Albuquerque, a Brasilia-based economic advisor in Brazil's Treasury.
The new budget program comes as pressure mounts on the government to crack the fiscal whip. So far, Brasilia has indicated it could raise its primary budget surplus target and is reportedly negotiating a new accord with the International Monetary Fund.
The overall aim is to shore up Brazil's defenses in the face of a possible Argentine default on debt and fallout from a homegrown energy crisis - all of which have already weakened the local currency, sent interest rates higher, slowed down economic growth and pushed up debt-servicing costs.
According to market speculation, the government is looking at reducing spending by between two billion to three billion reals ($1=BRR2.470).
Marcelo Carvalho, who is J.P. Morgan Chase's chief economist in Sao Paulo, said earlier this week that he expected the government to focus on expenditure cuts at the federal level, "where the authorities have room for discretionary cuts without the need for congressional approval."
In February, the Brazilian government slashed the budget by BRR5.86 billion from the original 2001 federal budget plan passed by Congress last year. The revised budget forecast BRR209.6 billion in revenue this year, down from BRR216.4 billion in the original document.
Budget Cut Would Offset Power Crunch Effect
Brazil's currency has shed more than 20% of its value against the U.S. dollar this year, in large part on fears that Argentina's financial crisis would spill over into its northern neighbor.
But the Brazilian budget cuts are also being implemented ahead of the expected impact of an energy rationing program on tax and public sector revenue.
Private-sector economists estimate the rationing, which requires industrial, commercial and retail users to reduce electricity use by 20% a month between June and December, will shave one to two percentage points off this year's initially forecast 4% to 4.5% economic growth.
That will hurt tax revenue generated from already-slowing sales of consumer and industrial goods, as well as inflows from state-run businesses such as oil giant Petroleo Brasileiro SA (PBR).
As a part of the new round of budget cuts, the government also indicated earlier this week that it could raise its primary surplus budget target to 3.5% of gross domestic product from 3.0%.
Earlier this year, the government hiked its 2002 primary surplus target - which excludes debt servicing payments - to 3% from 2.7% of GDP.
Last month the central bank said Brazil's total net debt reached its worst level ever, rising to BRR618.51 billion in May, or 51.9% of GDP. That's up from BRR596.772 billion in April, or 50.2% of GDP.
Debt-servicing costs are being hurt by the faltering real and rising interest rates at home, where the central bank has hiked the benchmark lending rate by 375 basis points to 19.00% since March.
In the first five months of the year Brazil posted a consolidated public sector primary surplus of BRR26.96 billion, or 5.62% of GDP, easily outstripping the 3.6% target agreed to with the International Monetary Fund.
The May surplus narrowed, though, to BRR3.71 billion, or 3.6% of GDP.
-By Anthony Dovkants, Dow Jones Newswires;55-11-3145-1478; anthony.dovkants@dowjones.com |
