FOCUS - Confusion over Brazil's fiscal health
Reuters, Friday, February 20, 1998 at 18:30
By John Miller
SAO PAULO, Feb 20 (Reuters) - Reports Friday that Brazil's
closely watched budget deficit deteriorated sharply in the
final month of 1997 puzzled economists and raised a huge
question on the nation's fiscal health ahead of a long Carnival
weekend.
While government officials off the record confirmed news
reports of worsening budget numbers, some questioned the
reliability of the figures and said they needed another week to
sort it all out.
"The Central Bank will not comment on this report for the
time being," a bank spokesman said. "The numbers are being
drawn up and it is therefore not the right time to comment on
them."
He said the bank, which was to release budget figures
Friday, would discuss them on February 26, when the nation
returns from the five-day Carnival celebration.
A Finance Ministry official, who spoke to Reuters on
condition of anonymity, said Friday that the budget deficit in
nominal terms ended the year at the equivalent of 6.0 percent
of gross domestic product.
The worsening was attributed to spending by municipal and
state governments in the month of December.
The market expected a 1997 figure closer to 5.0 percent of
GDP, about where it stood in the 12-month period to November.
"They transferred the announcement from today because it
would have been dangerous on the eve of a public holiday," the
official said.
Brazil's nominal budget deficit, which covers local, state
and federal spending, including interest payments, fell from
7.2 percent of GDP in 1995 to 5.9 percent in 1996 and was
expected to continue falling in 1997.
Global investors have kept a wary eye on Brazil's fiscal
improvement and have been assured by Brasilia that the progress
will continue.
Economists say improvement is essential because the
nation's wide current account and budget deficits make its
currency vulnerable to speculative attacks. They say the budget
gap must continue to shrink to deter speculators.
Brazil assets on local and international markets were
mostly unaffected by the report.
Late last year, Brazil doubled annual interest rates and
introduced an $18 billion budget savings package to plug dollar
outflows during the height of the Asian crisis. The move
reassured world markets that Brazil's fiscal commitments were
serious.
The Finance Ministry official also said Brazil's primary
accounts, which unlike the nominal deficit do not include
interest payments, closed 1997 with a 0.5 percent deficit. The
primary account was expected to end the year in balance or with
a slight surplus.
While economists described the numbers as "shocking" and
"unbelievable," they said it was too early to completely
discard them.
"You can not discard them because they are not totally out
of the range of possibility. But if they were true, it would
indeed be surprising," said an economist at a leading
international bank in Brazil.
If true, the figures point to a whopping 1.0 percentage
point deterioration in the budget deficit in December. The
largest official deterioration in a single month in 1997 was
0.5 percent in June, economists said.
Some economists, like BMC Bank's Marcelo Allain, said the
numbers did not appear very reliable.
"This seems like an unreliable (nominal budget) number
because the last figure we got from the Central Bank was 5.03
percent of GDP in the 12 months to November. It seems
impossible for it to have jumped this much in one month,"
Allain said.
A government official quoted by financial daily Gazeta
Mercantil agreed. "These numbers are very strange and cast
doubt on the Central Bank's methods of calculation," the
official told the newspaper.
john.miller@reuters.com))
Copyright 1998, Reuters News Service |
