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

To: md1derful who wrote (8289)	9/18/1998 1:52:00 PM
From: Steve Fancy	Respond to of 22640

INTERVIEW-Brazil mulling new budget cuts, tax rise Reuters, Friday, September 18, 1998 at 13:02 By Giancarlo Summa BRASILIA, Sept 18 (Reuters) - Brazil may announce further spending cuts or even raise taxes in order to achieve its target of posting a primary budget surplus of 5 billion reais ($4.2 billion) in 1998, a senior Finance Ministry official said. "It is difficult to imagine that we can advance any further in 1998 than we already have in terms of cuts, but if it is necessary to meet the targets we have set, we will make further cuts," the ministry's executive secretary Pedro Parente told Reuters in an interview late Thursday. Parente is joint head of a fiscal board created last week to ensure Brazil meets its budget targets. The Finance Ministry said it would cut current costs and investment spending by 4 billion reais by the end of 1998, with further cuts in the pipeline for 1999. This week, the commission proposed extra cuts of some 2.1 billion reais this year. The government may also decide to raise taxes, already high at 30 percent of gross domestic product (GDP). "Our fiscal adjustment program will focus initially on adjusting costs. But in times like these, in which it is absolutely necessary to balance the fiscal situation, we can't exclude this possibility," Parente said. He reiterated the Brazilian government would do whatever it took to defend the stability of the local currency, the real. "We are going to defend the stability of the real until the end. This will have a cost, but the cost to society would be greater if we did not defend the currency," he said. The Central Bank last week hiked interest rates to almost 50 percent a year in an effort to stem massive dollar outflows as investors dumped local assets amid fears economic crises in Russia and Asia could topple Latin America's largest economy. The rate hike could add 10 billion reais to Brazil's debt servicing costs if rates remain at these levels until the end of the year, complicating its struggle to slice its huge budget deficit, Parente said. Analysts say the nominal budget deficit is unsustainably high at 7.27 percent of GDP between January and June and, together with a current account deficit of 3.94 percent of GDP, makes the real currency vulnerable to speculative attack. "We would like to lower rates immediately, but this is not possible. Interest rates will fall only when the market and international conditions allow," the executive secretary said. Brazil also maintained hopes that the United States would soon cut interest rates, despite a speech by U.S. Federal Reserve Chairman Alan Greenspan indicating there would be no concerted cut in rates between industrialized nations. "Anyone who has followed Greenspan's remarks knows he is very cautious, what he said does not mean that he will or he won't cut rates at the next Fed meeting," Parente said. "We still think (a U.S. rate cut) would be an important contribution, not just for Latin America, but for the world." Copyright 1998, Reuters News Service