Brazil may have to cut is primary fiscal surplus by one
percentage point this year, observers believe.
John Welch, analyst at Itau bank, said that the target for the
surplus (before debt servicing), currently 3.8% of GDP, could
be brought down to 2.8%.
That does not kill anybody, but it depends how you get
there, he said. Better to cut taxes than to expand
public expenditures to stimulate economic activity, he
told Emerging Markets.
High public expenditure remains a sore point. If [the
authorities] start messing around with public expenditure, it
gets more difficult, Welch said. They need to cut
public spending. Tax cuts are a stimulus. [The government] used
it very judiciously, but they could do more.
But Brazils planning minister Paulo Bernardo Silva
acknowledged in an interview with Emerging Markets yesterday
the country would face serious fiscal restrictions
He estimated a decline in fiscal revenues of 48 billion reais
which would have to be translated in spending.
Unlike in the past, were not spending money to
cover losses, he said, adding that Brazil would expend
efforts to keep the fiscal balance in check.The
steep contraction of the economy in the past six months has led
to a fall in tax revenues, which, coupled with the drop in
commodity prices, is also a cause for concern.
The Institute of International Finance (IIF) says in a report
issued today: Brazils scope for substantial
countercyclical fiscal policy is severely constrained by
revenue earmarking, substantial fiscal rigidity and a
still-high gross public debt-to-GDP ratio of 59%.
Brazilian officials are still shrugging off talk of recession
in the largest Latin American economy.
Jose Carlos Miranda, Brazils executive director at the
IDB, told Emerging Markets: The evidence I have does not
show that Brazil is in recession. You cannot just take the data
for the last quarter of last year and the first quarter of this
year, and then annualize them to project the 2009 GDP growth
Miranda called Morgan Stanleys recent Brazil GDP growth
forecast of 4.5% completely weird.
He argued that the Central Bank interventions in the currency
futures market were not affecting the volume of reserves, which
are slightly below $200 billion.
Richard Franck, CEO of Darby Investment Overseas, who has
several private equity interests in Brazil, said: They
never [before] had that kind of cushion to help on their
sovereign picture and foreign exchange transactions. This is a
Brazil has also benefited from its floating exchange rate, IIF
Latin America economist Frederick Jaspersen said. They
have been very cautious in managing their reserves. They have
some firepower there if things get really tough.
Jaspersen said Brazil has a lot of back up support to
these reserves, as it could access credit lines of up to
$60 billion from the IMF and the US Federal Reserve, as part of
a currency swap deal.