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Strategies & Market Trends : Telebras (TBH) & Brazil -- Ignore unavailable to you. Want to Upgrade?

To: Steve Fancy who wrote (22407)	7/18/2001 10:44:05 AM
From: Steve Fancy	Read Replies (1) \| Respond to of 22640

Pressure Mounts On Brazil To Further Crack Fiscal Whip (This article was originally published Tuesday) July 18, 2001 By Anthony Dovkants Of DOW JONES NEWSWIRES SAO PAULO -- Pressure is mounting on Brazil to tighten its fiscal belt further this year, as the debt burden increases in the face of higher interest rates and a falling real. People close to the Finance Ministry confirmed Tuesday the government is mulling spending cuts in order to increase its primary budget surplus target, which is currently set at 3% of gross domestic product. Fallout from financially troubled neighbor Argentina has sparked a 22% depreciation in the Brazilian real ($1=BRR2.498) so far this year, pushing up debt-servicing costs. An energy rationing program at home is meanwhile expected to shave one to two percentage points off this year's initially forecast 4% to 4.5% economic growth. "The government is doing the numbers at the moment and it's too early to say whether the (public sector primary surplus) target will be adjusted higher, but there's a lot of pressure coming from interest rates and the weak real," said a person familiar with the government deliberations. The government has already 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 came to BRR618.51 billion in May, or 51.9% of GDP, compared with BRR596.772 billion in April, or 50.2% of GDP. 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. According to local press reports, the government could raise the public sector surplus target to 3.5% of GDP and tighten the budget by BRR6.5 billion in the process. A spokesman at the Finance Ministry declined to comment on the reports. But Marcelo Carvalho, who is J.P. Morgan Chase's chief economist in Sao Paulo, also believes the government will tighten the screws. "Fiscal adjustment will likely focus on expenditure cuts at the federal level, where the authorities have room for discretionary cuts without the need for congressional approval," Carvalho said. Congress is in recess until August. Sources close to the Finance Ministry said any budget decisions will be dependent on monetary authorities' decision on interest rates Wednesday. Since March, the central bank has raised interest rates by 300 basis points to 18.25%, and the market expects a further hike of 50 to 175 basis points when Wednesday's policy meeting concludes. President Fernando Henrique Cardoso on Tuesday met with key members of his economic team, including central bank president Arminio Fraga and Finance Minister Pedro Malan. Analysts are speculating that the government may cut the 2001 budget by a further BRR2 billion to BRR3 billion, after already slashing BRR5.86 billion in February from the original 2001 federal budget plan passed by Congress last year. In February, the revised budget forecast BRR209.6 billion in revenue this year, down from BRR216.4 billion in the original document. There is also increasing speculation that Brazil will seek a new accord with the IMF to help alleviate market jitters ahead of the October 2001 presidential elections. The market-friendly Cardoso can't run for re-election, and, with his popularity slipping at home amid slowing growth, some investors fear that a more populist-leaning candidate could take the presidency. The Finance Ministry said it won't comment about any possible plans to renew its IMF accord until next month, when a report will be released about the IMF's latest visit here to verify the country's fiscal performance. Brazil entered a $41.5 billion bailout package with the IMF shortly after it devalued its currency in January 1999. The agreement expires in December. -By Anthony Dovkants, Dow Jones Newswires;55-11-3145-1478; anthony.dovkants@dowjones.com