Brazil Cardoso: With New Forex Policy, Need Fiscal Reforms
Dow Jones Newswires
BRASILIA -- Following the central bank's decision to float the currency, the real, Brazilian President Fernando Henrique Cardoso said Monday that fiscal reforms have become more important than ever.
"Now, after the decisions have been made with respect to the exchange rate, we will need to quickly effect fiscal adjustment," Cardoso said, speaking at a new conference along with Senate president Antonio Carlos Magalhaes and lower house chairman Michel Temer.
The Central Bank Monday announced that the real would be allowed to float freely against the dollar, abandoning the policy - one of the bulwarks of Cardoso's economic stabilization program - of controlling currency movements.
In a show of congressional support for the fiscal measures, Magalhaes said Congress, which has convened for a special session this month, could work weekends and may extend the session into February to pass the reforms.
The Senate leader added the controversial CPMF tax measure will go through a second-round vote in the Senate Tuesday and a measure to increase civil servant payments into the pension system, which has failed four times over the past four years, could be voted on Wednesday.
Cardoso spoke to the press after meeting with Magalhaes and Temer to map out strategies for voting on measures included in the government's fiscal stabilization plan over the next several weeks.
Temer said he will convene a meeting of all party leaders early Tuesday to discuss a strategy to ensure that the measure to increase pension contributions from civil servants goes ahead this week.
Temer said Congress's task now is to help restore credibility, both domestically and abroad.
Looking ahead, Magalhaes said that Congress will vote on political reform measures by the middle of 1999.
Cardoso thanked parties that have supported him in Congress and said he is confident the necessary backing exists among legislators to spur growth and allow for a cut in interest rates.
"We are going to carry out the necessary adjustments," Cardoso said.
"We don't think that it's enough to make a decision and have interest rates fall," he said, referring to the recent foreign exchange policy shift. "What we're going to do first...is resolve rapidly what's on the (Congressional voting) schedule for this week."
While he expects rates have room to fall, Cardoso said that he won't hesitate to raise them again if necessary.
Brazil's prime lending rate stands at 29%, down from 49% in September, when the government raised rates to stem capital outflows as panic gripped investors following Russia's default and de-facto devaluation in August.
Reports over the weekend said that the government hopes interest rates could be trimmed to between 15% and 20% by the end of the first quarter of the year.
-0 -
Cardoso said that interest rates are no longer dependent on what happens on the forreign-exchange market but will be adjusted in terms of the fiscal situation. He added that approval of fiscal reforms will also calm international markets.
"The fiscal performance is now the anchor for interest rates," the President said. "We are therefore more dependent on ourselves, on what we do."
Asked why the government hadn't implemented the new foreign-exchange policy earlier, Cardoso replied "circumstances change, the world changes. What's good at the moment isn't necessarily good at another."
Cardoso also said that there's no reason for prices to rise in the wake of the exchange policy shift.
"The population can rest assured there won't be any major short-term price rises," Cardoso said, saying that the government has tools to prevent this.
Referring to the decision earlier this month by Minas Gerais - Brazil's third wealthiest state - to declare a 90-day moratorium on federal debt payments, Cardoso said that it shouldn't hinder the fiscal adjustment plan.
Cardoso said that the federal government will fight all lawsuits entered by states concerning their debt payments.
The president said he will meet some governors Tuesday to discuss the overall debt situation.
"My door is always open for discussion," he added.
As reported, a group of governors whp seek to renegotiate their debts with the federal government met Monday in the Minas Gerais capital of Belo Horizonte
-By Stephen Wisnefski; William Vanvolsem and Mara Lemos
(55-11) 813-1988; swisnefski@ap.org
|
