Mantega Says Brazil Will Cut Spending to Meet Fiscal Goal

Finance Minister Guido Mantega said Brazil will trim spending to meet this year’s fiscal target, even as the government faces pressure from street demonstrations to channel more money to public services.

Officials will cut costs to meet a primary surplus goal of 2.3 percent of gross domestic product, Mantega said today at a public hearing in Brazil’s lower house of Congress. Brazil’s main public accounts are under control, and the country will be able to achieve a balanced budget in the future, Mantega said.

President Dilma Rousseff’s administration this week proposed plans to improve government services while maintaining fiscal austerity in the world’s second largest emerging market. Policy makers are seeking to quell the biggest street protests in decades while preventing spending from further fueling consumer inflation that is already faster than the upper limit of the central bank’s target range. Police are bracing for fresh protests today, as demonstrators across the country denounce corruption and call for improved health care and public education.

“This year, we will reduce current spending,” Mantega said. “That will guarantee that we meet our established fiscal goal of having a primary surplus of at least 2.3 percent.”

Market Skepticism

The market received Mantega’s comments with skepticism, as pressure from street protests is for more expenditures, according to Vladimir Caramaschi, chief strategist at Credit Agricole Brasil SA DTVM.

“This type of promise at a moment like this has no credibility,” Caramaschi said by phone. “It would only work if the minister delivers results. Promises alone don’t solve anything.”

Swap rates on the contract maturing in January 2015, the most traded in Sao Paulo today, fell one basis point, or 0.01 percentage point, to 9.90 percent at 12:40 p.m. local time. The real strengthened 0.62 percent to 2.2003 per U.S. dollar.

Brazil’s inflation through mid-June reached 6.67 percent, breaching the 6.5 percent upper limit of the central bank’s target range. Central bankers in May accelerated the pace of benchmark interest rate increases, raising borrowing costs by 50 basis points to 8 percent after a 25 basis-point increase in April.

First-quarter economic growth unexpectedly slowed to 0.55 percent, falling short of analysts’ forecasts for the fifth straight quarter. Latin America’s largest economy will expand 3.1 percent this year, according to central bank estimates.

“They are saying that, if it is necessary, the government will make cuts,” Roberto Padovani, chief economist at Votorantim Ctvm Ltda, said by phone from Sao Paulo. “They are not cutting today.”

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