Brazil Senate Chief Proposes Stimulus Plan During Recession

Brazil’s Senate leader Renan Calheiros proposed stimulus measures on Friday that run counter to President Dilma Rousseff’s austerity program.

The so-called Pact for the Defense of Labor would provide stimulus for labor-intensive sectors by increasing government purchases that boost employment, and give subsidized lending to projects that create jobs, Calheiros said in a May Day video address. It could also include tax breaks for certain sectors, he said.

Rousseff’s economic team, led by Finance Minister Joaquim Levy, is seeking to trim outlays and boost revenue in order to dodge a possible sovereign credit rating downgrade to junk. With Rousseff’s approval rating at a record low, even lawmakers of her coalition like Calheiros have raised objections to her program to shore up government accounts.

“Congress will not be a mere spectator to the fiscal adjustment,” Calheiros said. He added that the proposed package would run until the end of Brazil’s recession. Analysts surveyed by the central bank expect a 1.1 percent contraction this year before a rebound in 2016.

Rousseff abstained from her standard televised May Day speech Friday, opting instead to release three short videos via social media. That “created a vacuum” for Calheiros of the PMDB party to fill and score points that increase the political cost to Rousseff, according to Joao Augusto de Castro Neves, an analyst at Eurasia Group.

“What’s happening does remind us of the risks that Rousseff will have to give more to the PMDB, and that this is going to be a tension-prone relationship,” Castro Neves said by phone from Washington. “Eventually they’re going to approve the bulk of the fiscal package in the coming weeks with some degree of watering down.”

Rousseff said in one of her videos posted online that the country must recognize society’s demands, and for that reason established a forum for the debate of labor policies. The increase to the minimum wage has been one of the great achievements of the last 13 years, she said in a separate video.

Levy is targeting a primary budget surplus, which excludes interest payments, of 1.2 percent of gross domestic product, following a 0.6 percent deficit last year. The government’s primary budget surplus in March was 239 million reais ($79 million), versus a median estimate of 5 billion reais from economists surveyed by Bloomberg.