Brazilian fiscal plan measures delayed another week
Reuters, Monday, October 19, 1998 at 17:37
By Joelle Diderich
BRASILIA, Oct 19 (Reuters) - Brazil's economic team is due
to present a fiscal austerity plan to President Fernando
Henrique Cardoso on Tuesday, but battered financial markets
will have to wait until next week to hear of its measures.
Cardoso has asked to see by Tuesday the long-awaited
three-year fiscal adjustment plan aimed at keeping Brazil's
economy alive and clearing the way for an aid package led by
the International Monetary Fund (IMF).
Latin America's largest nation must urgently tackle its
bloated budget deficit, currently around 7 percent of gross
domestic product (GDP), to stem massive dollar outflows and
prevent a collapse in the domestic currency, the real.
Cardoso was expected to meet his closest economic advisers
on Tuesday to approve details of the plan, but officials were
not likely to announce the measures until after a second round
of voting in state gubernatorial races on Sunday.
"They will present this to the president tomorrow
(Tuesday), but there won't be an announcement," said Ricardo
Pedreira, political analyst at consultancy Santa Fe Ideias.
"Our expectation is that it will be on Oct. 26 or 27."
Cardoso is seen as reluctant to upset key allies running
for the governorships of three of Brazil's most important
states who will play a key role in pushing through painful
spending cuts and tax increases in the fiscal plan.
The president was due to arrive back in the capital
Brasilia on Monday from an Ibero-American summit in Portugal,
but had no official meetings on his agenda, a spokeswoman for
the presidency said.
Key advisers, including Finance Ministry Executive
Secretary Pedro Parente, were due to return late on Monday from
Washington, where they have been meeting IMF officials for what
were termed "technical talks" on a cash loan.
Talk of an IMF-led loan of up to $30 billion has partially
restored investor confidence in Brazil after Russia's
devaluation in August raised fears that the Latin American
powerhouse could be the next emerging market to topple.
Brazil accounts for almost half of Latin America's output.
Economists say a devaluation in the real, cornerstone of
Brazil's four-year economic recovery, would likely plunge the
whole region into recession and hit U.S. exports.
Some foreign economists saw risks to delaying the fiscal
measures by another week amid steady dollar outflows.
"The longer it takes for Brazil to release the details and
to show progress toward enacting legislation, the more
vulnerable Brazil becomes to 'event risk' such as additional
failures of financial institutions," said John Mullin, director
of Latin American equity strategy at ABN Amro Inc.
But local analysts were sanguine, noting it was important
for Cardoso to first secure political support for the plan.
"In my opinion, the point at which the market gets to know
the details is not crucial," said Alvaro Lopes, executive
vice-president of Banco Bozano, Simonsen in Rio de Janeiro.
"What is really crucial is that the government
fulfillmarket players' expectations," he said. "The measures
must be practical, harsh and they must effectively be
implemented. That is much more important than the timing."
Economists expect the government to announce first a
package of tax rises and spending cuts of at least $19.5
billion in order to meet its target of posting a primary budget
surplus, excluding debt costs, of 2.5 percent to 3 percent of
GDP in 1999.
But a second wave of measures, including long-delayed
reforms of the civil service, pension system and tax structure,
will depend on the goodwill of lawmakers, many of whom are
likely to demand favors in return, analysts said.
Cardoso was expected to spend the week meeting leaders of
government-allied parties in the fractious Congress. They must
be won over before the government presents the fiscal steps to
deputies, possibly as early as next Monday.
Copyright 1998, Reuters News Service |
