Brazil to push growth ahead of fiscal discipline
BRAZIL’S government was willing to relax its fiscal discipline to prioritise economic growth this year, Treasury Secretary Arno Augustin said this week, backing away from one of the country’s main economic policy pillars of the last decade.
Augustin said Brazil did not need to fully meet its primary budget surplus target to keep finances in good standing, since the economy had matured.
“What’s new, and has been for several years now, is that the government prioritises the economy to determine fiscal policy,” he said late on Tuesday.
“In the past, it was difficult to make changes to the primary [surplus] target because there were doubts about the medium- and long-[term] sustainability” of Brazil’s indebtedness, Augustin said. “Now, that sustainability is assured.“
His comments are some of the most explicit by an official to recognise that the Brazilian government is moving away from the strict fiscal manage- ment rules credited with ushering in macroeconomic stability after decades of crises.
A more flexible fiscal policy also highlights President Dilma Rousseff ’s efforts to remove some of the safeguards that have protected the economy over the past decade, but have also restrained growth.
Those people who have doubts about the fundamentals of our economy will see they remain solid.
Augustin, whom officials in Brasilia say has gained much influence with Rousseff, went as far as to say the government could even drop the primary surplus target in favour of an overall budget balance goal that includes debt payments. However, he said no decision had been made on the matter.
The primary surplus, or revenues minus expenditures excluding debt payments, is a gauge of a country’s ability to repay its obligations.
The government missed its 2012 primary surplus goal of 139.8 billion reals (R590bn) by a long shot after a slowdown in tax revenues. Officials tapped into the government’s sovereign wealth fund and brought forward dividend payments from state-run companies to meet a reduced primary goal.
Some analysts have criticised Brazil for using what they describe as “creative” accounting methods.
Many outside auditors, including the International Monetary Fund (IMF), do not recognise the accounting methods used by the Brazilian government to meet the target. For example, in 2010 when Brazil also lowered the goal by excluding some infrastructure investments, the IMF said Brazil’s primary budget surplus was equal to 2.4 percent of gross domestic product (GDP) and not the 3.1 percent announced by the government.
Augustin said the government had the legal right to use those accounting tools. To further increase its fiscal ma- noeuvring, the government proposed for the first time in this year’s budget bill an option to exclude some tax deductions from its primary target of 155.9 billion reals.
Augustin said record low interest rates would keep pushing down the debt burden and give the government extra room to bolster an economy that has struggled to grow since mid-2011.
To the envy of a highly indebted US and euro zone, Brazil has been able to slash its public debt from nearly 60 percent of GDP to about 35 percent today.
Still, even after easing fiscal rigour to give more stimulus to local businesses, the government failed to prop up an economy that probably grew a meagre 1 percent last year.
To foster growth, Augustin said the government would ensure there was a 20 percent reduction in power tariffs this year, which he said would likely trim more than half a percentage point off inflation.
He said the economy was picking up speed this year and the government planned to sell dollar-denominated debt abroad in the first quarter.
In September, Brazil sold $1.35bn (R11.6bn) in 10-year global bonds to yield 2.686 percent, the lowest rate ever.
“We will make a good debt sale and those people who have doubts about the fundamentals of our country will see that they remain solid,” Augustin said. – Reuters