Barbosa Says Brazil Sticking to New 2016 Fiscal Goal for Now

  • "We'll take all the measures necessary to achieve that target"
  • "There's no discussion at this moment of proposing a band"

Brazil’s new Finance Minister Nelson Barbosa said the administration has no plans at this time to relax next year’s fiscal target, without specifying how his team will achieve its goals if lawmakers block government legislation to raise taxes.

Brazil in 2016 is shooting to reverse two straight years of annual budget deficits before interest payments. Legislators last week approved a bill that sets the administration’s 2016 primary surplus target at 0.5 percent of gross domestic product, rejecting a proposal by government supporters in Congress to set a range of 0 percent to 0.5 percent.

“We’ll take all the measures necessary to achieve that target,” the 46-year-old economist told foreign media on Tuesday, when asked about the new primary surplus goal. "There’s no discussion at this moment of proposing a band for the fiscal target of 2016."

Since taking over Brazil’s top economic job this week, Barbosa has been struggling to convince skeptics he can succeed where his predecessor Joaquim Levy fell short in narrowing the budget deficit and staving off credit downgrades. The Ibovespa stock index and the real plunged after Barbosa’s appointment on concerns he will give in to popular demands to soften fiscal austerity.

Markets rebounded slightly on Tuesday as part of a broader rally in emerging markets. The real strengthened 0.2 percent to 4.003 per U.S. dollar in mid-afternoon trading and the Ibovespa gained 0.2 percent.

Political Situation

Brazil’s political situation is improving as the government shores up support in Congress, Barbosa said. The administration hopes legislators will approve a tax on banking transactions, known as the CPMF, by June to help it hit next year’s primary surplus target.

"The government will be able to create consensus around this proposal," he said about CPMF. "If this doesn’t happen, we’ll have to compensate that with other measures, probably on the revenue side but if necessary also on the spending side."

Investors and credit rating companies use Brazil’s primary budget result to gauge the country’s fiscal health. Fitch Ratings downgraded Brazil to junk status last week after government supporters pushed for a lower primary target. The cut came three months after Standard & Poor’s reduced the country to the equivalent level amid a shrinking economy and eroding fiscal accounts.

While Barbosa may surprise investors with a bolder-than-expected agenda, including changes to the pension system that would reduce expenditures, it’s the threat of impeachment and President Dilma Rousseff’s vulnerabilities that should be a source of concern, analysts with political consulting firm Eurasia Group wrote on Monday.

“The president’s greater dependence on the left to avoid impeachment will lower the likelihood of reform proposals that the left doesn’t like,” Eurasia analysts Christopher Garman and Joao Augusto de Castro Neves wrote in a note to clients.

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