Brazil's Cardoso Announces BRR8.7B Spending Cuts For '99
Dow Jones Newswires
27/10/98 22-02G
SAO PAULO -- In the first official word on Brazil's fiscal austerity plans,
President Fernando Henrique Cardoso said Tuesday that the country will cut
8.7 billion reals (BRR)($1=BRR1.19) from its 1999 budget.
In a brief recorded address, Cardoso said that the cuts are "without
precedence" and reflect the government's determination to achieve "fiscal
balance" in as short a period as possible.
"Most of the cuts and the revenue increases are temporary, to address an
emergency situation," Cardoso said. "They will be suspended as soon as we
manage to restore more balance in our accounts."
Although he provided no numbers, the president said that the CPMF financial
transaction tax will be raised and that civil servants will be required to pay
more into the pension system. The government will also raise revenues by
increasing the COFINS tax, a social security financing tax paid by companies.
Cardoso said that Brazil's social security system places the biggest burden on
the country's public accounts.
"Social security is the area where we spend the most and collect the least," he
said. "It's one of the biggest causes of the public deficit."
Brazil's nominal public deficit stood at 7.0% of its gross domestic product at
the end of September.
The president said that the financing gap in the social security system - both
public and private - stands at BRR42 billion, of which only BRR7.8 billion is
owed by the private sector, which covers around 18 million employees.
In the public sector, the federal social security system alone shows a gap of
BRR18 billion, for 905,000 people.
"You can see that the big problem that we have is social security," Cardoso
said. "The quickest and least costly way for Brazilians is to complete reforms
with urgency."
Cardoso urged Congress to approve a landmark social security reform bill,
which has been delayed for four years. The bill is expected to go through a
final vote before the end of the year.
Congress will also have to vote on tax reform and pass enabling legislation for
an administrative reform bill approved earlier this year.
The president said that the BRR8.7 billion cut - which he said was the highest
amount possible without sacrificing essential public services - wouldn't be
enough to balance public accounts, making quick approval of reforms a matter
of urgency.
Cardoso confirmed that the full details of the fiscal adjustment plan will be
announced Wednesday.
As reported, Finance Minister Pedro Malan is expected to present the
austerity measures after 1300 GMT.
Analysts said that the measures announced by the president are in line with
what local press had been reporting in recent weeks.
"There was nothing new, but at least the president signaled that he's willing to
go ahead with the fiscal program," said Aricio Oliveira, a consultant at Sao
Paulo's MCM Consultores. "Let's see how things go in Congress. That's the
biggest challenge."
While there were no surprises, analysts praised Cardoso's courage in
announcing an increase in social security payments for civil servants - a political
hornet's nest - and some tax increases.
Other analysts weren't as pleased with the broad strokes painted by Cardoso
in the speech.
"Where are the figures all are waiting for?" said David Fleischer, a political
scientist at the University of Brasilia, who termed the speech "a pep talk
without many figures." Market sources have pegged the amount of cuts
necessary at around BRR20 billion.
All agreed, however, that the burden now rests squarely on Congress's
shoulders.
"Congress will have to implement the measures and approve the reforms
swiftly," said Joaquim Eloi de Toledo, an economist at the university of Sao
Paulo. "Only after Congress acts will Brazil recover its lost credibility among
domestic and foreign investors."
-By Stephen Wisnefski; William Vanvolsem, Mara Lemos and Adriana Arai |
