Brazil Chief Economists Tell Senators to Seek Clear Fiscal Rules

Chief economists from some of Brazil’s largest banks told senators the country needs more transparent fiscal rules to help improve business confidence and drive economic growth.

Investors in Brazil have little tolerance for economic surprises, and the country needs to do more to consolidate the independence of its central bank, Octavio de Barros, chief economist at Bradesco, told a Senate hearing in Brasilia today. Flexibility in the fiscal surplus target brings extra risks to the economy, said Credit Suisse chief economist Nilson Teixeira. Sticking to defined economic goals would help, said Itau Unibanco chief economist Ilan Goldfajn.

The economists raised concern as to whether President Dilma Rousseff’s government can keep fiscal accounts in order while trying to steer the world’s second-largest emerging market out of a period of low growth and high inflation. Standard & Poor’s put Brazil’s credit rating on negative outlook in June, saying the move was triggered in part by a weaker fiscal policy. Finance Minister Guido Mantega said on Aug. 29 it’s too early to define next year’s primary surplus goal, a gauge for public spending, and added that the target may shift depending on state and city results.

“If there were transparent indicators, then things would be easier,” Goldfajn said today.

Spending Cuts

Brazil can cut as much as 58 billion reais ($25.4 billion) from next year’s primary budget surplus target, which excludes interest payments and could fluctuate from 2.1 percent of gross domestic product to 3.2 percent for 2014, according to Mantega. The government this year is targeting a goal of 2.3 percent of GDP.

Standardizing economic targets would improve visibility, Teixeira said at today’s hearing. Brazil has shown little willingness for long-term reforms, and should consider legislation that limits increases in public sector expenditures, Barros said.

Brazil’s economy grew 1.5 percent during the second quarter, or an annualized 6 percent, on the back of faster investments. That was the fastest growth since the first quarter of 2010 and more than all 44 forecasts from analysts surveyed by Bloomberg, whose median estimate was 0.9 percent.

The central bank on Aug. 28 raised the benchmark Selic by a half-percentage point to 9 percent, the fourth straight increase. Policy makers have boosted the rate by 175 basis points since April, the fastest pace of monetary tightening among major world economies tracked by Bloomberg.

Annual inflation measured by the IPCA index decelerated in August to 6.09 percent, the slowest since December, the national statistics agency said Sept. 6. Brazil targets annual inflation at 4.5 percent, plus or minus two percentage points.

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