Mantega Says Using Brazil Wealth Fund to Cover Budget LegitimateMario Sergio Lima
Brazilian Finance Minister Guido Mantega defended today the use of the country’s sovereign fund to help meet fiscal targets in a year when Latin America’s biggest economy had its debt rating downgraded.
Brazil announced it will withdraw 3.5 billion reais ($1.45 billion) from the sovereign fund to cover spending. The primary surplus, which excludes interest payments, was 1.22 percent of gross domestic product in the year through July, compared with the 1.9 percent target.
“The sovereign fund is a primary savings account we created in 2008 and is perfectly usable,” Mantega told reporters today in Brasilia. “Nothing is more legitimate than using that fund to cover part of expenses.”
Economists forecast Brazil will grow this year at the slowest pace since 2009 as President Dilma Rousseff vies for re-election in less than two weeks. Above-target inflation has forced central bank to maintain the benchmark interest rate at the highest level in more than two years.
Brazil’s credit rating was cut for the first time in a decade on Mar. 24 by Standard & Poor’s. The agency cited slow economic growth and expansionary fiscal policies as responsible for an increase in debt levels. On Sept. 9, Moody’s cut the outlook on Brazil’s rating to negative.
Measures to boost economy also reduced tax revenue and raised expenses. Mantega announced this month that the country will cut taxes on overseas earnings for all industries and increase tax credits for export manufacturers to help boost the competitiveness of Brazilian companies abroad. Brazil also expanded by 350,000 units the public housing program for the first half of next year.
Monthly inflation in mid-September accelerated to 0.39 percent from 0.14 percent a month earlier. Annual inflation reached 6.62 percent, the fastest since mid-June 2013. Brazil’s central bank targets annual inflation at 4.5 percent, plus or minus two percentage points.
Economists surveyed by the central bank cut their estimate for GDP growth this year for the 17th straight week to 0.3 percent. The central bank on Sept. 3 kept the benchmark interest rate unchanged at 11 percent for the third straight meeting.