Brazil’s Rousseff Discusses Budget Cuts With Economic Team

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Brazilian President Dilma Rousseff met with her economic team over the weekend to finalize the discussions of budget cuts so that fiscal adjustments, announced by the government since the beginning of the year, as well as the primary surplus, are met. Attending the meeting were Finance Minister, Joaquim Levy, Planning Minister, Nelson Barbosa as well as Chief of Staff Aloizio Mercadante. These spending cuts are expected to be announced by Friday, May 22nd.

According to market analysts, the cuts in the 2015 federal budget should fall between R$60 and 80 billion. For the past few weeks, President Rousseff has been meeting with key cabinet members to discuss specific budget cuts in the different sectors of the economy.

The government’s primary surplus target for 2015 is 1.2 percent of the country’s GDP, which should equal R$66.3 billion. While the annual federal budget needs to be approved by Congress, the Executive office has the power to announce budget freezes with no need for legislative authorization.

However, last week the government suffered a blow in its fiscal adjustment plans when the Senate voted to increase spending with pensions.

Finance Minister Levy told reporters during the weekend that if the necessary fiscal adjustment measures are not approved by Congress, the government may have to resort to the alternative: raising taxes. “Every time one creates new spending, one is necessarily creating the need for new taxes,” the Minister stated.

Levy also said that any deviation from expenditures in the medium term also has an impact on interest rates, which in turn affects investments. According to Levy the government’s objective is to bring discretionary expenditures to the levels seen in 2013 so that the government may continue to have credibility with both domestic and foreign investors.