Analysts Say Brazil’s Economic Measures May Not be Enough

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – As Brazilian President Dilma Rousseff and her economic team try to convince Brazil’s Congress to approve unpopular austerity measures to try to halt the economy from further disintegration, international financial analysts say that these actions may not be enough to bring the country’s economy back to a growth path.

Earlier this week the government announced measures which would not only do away with the estimated R$30 billion deficit next year but would also insure the R$34 billion primary surplus target.

“Past form suggests there is good reason to expect actual budget savings to fall well short of government projections. Part of this is political, with measures diluted in order to pass Congress,” said Neil Shearing, Chief Emerging Markets Economist at Capital Economics in a note to clients.

According to Shearing the government’s measures were aimed at calming financial markets after the country was dropped from investment grade last week by S&P but for the analyst the measures ‘are unlikely to do much to restore the public finances’.

Financial analysts say the problem is that the majority of the measures call for an increase in revenues, which translates into an increase in taxes for the population. According to Finance Minister Levy to obtain the R$64 billion to zero the deficit and produce the sought after surplus, the government will reduce spending by R$26 billion while increasing revenues by R$38 billion.

According to analysts at Capital Economics, ‘the latest measures reveal more about the impotence of the government in being able to constrain spending than anything else’. The economic research consultancy group expects Brazil to register a large primary deficit this year (one percent of its GDP) and a small primary deficit next year (0.3 percent of its GDP).