Wed, Jan 07, 2015 - Page 15 News List

Brazil’s new finance minister calls for fiscal balance

ECONOMIC CONSERVATIVE:At his swearing-in ceremony, Joaquim Levy said that correcting the country’s woes would involve spending cuts and possible tax hikes

Reuters, BRASILIA

Brazil’s government must make difficult budget cuts to improve investor confidence and restore economic growth, new Finance Minister Joaquim Levy said on Monday.

At his swearing-in ceremony in Brasilia, former treasury chief Levy said the fiscal adjustments would require the participation of society as a whole and would involve spending cuts and possible tax hikes.

“Fiscal balance is indispensable in order to continue granting opportunities to our people,” Levy said. He said that Brazil would see benefits such as greater business confidence, better-developed credit markets, higher levels of entrepreneurship and greater foreign investment.

Levy addressed reporters on the day Brazil posted its first annual trade deficit in 14 years, with imports outstripping exports by US$3.9 billion.

Brazil now faces a fifth straight year of low growth after a peak of 7.5 percent in 2010. Demand is low and inflation is high — in November of last year it broke through a government ceiling of 6.56 percent. Levy must restore confidence already sagging in the wake of a kickbacks scandal at state oil firm Petrobras.

He insisted he was optimistic

“In the coming four years, one way or another our economy will be transformed,” Levy said, adding that his policies would help attract private investment.

Levy named his policymaking team at the same event, tapping former finance ministry official Marcelo Barbosa Saintive to replace Arno Augustin as treasury secretary.

Tarcisio Godoy, a Banco Bradesco executive who worked previously with Levy in government, will take the No. 2 position at the finance ministry.

Brazilian President Dilma Rousseff appointed Levy, a former banker, in an attempt to calm investors worried over her administration’s heavy intervention in the private sector and deteriorating economic fundamentals. Levy is a fiscal conservative known for slashing spending during his 2003-2006 stint at the treasury.

The administration has already announced cuts in subsidies to public banks, higher interest rates at state development bank BNDES and limits to pension and unemployment benefits.

On Monday, Levy said those adjustment measures would help bolster confidence and support investments without the need of more government aid to certain sectors.

“Brazil has proven to be a resilient economy,” Levy told reporters after his swearing-in ceremony. “We need to give everyone the same clear rules to lower the anxiety of businesses.”

He said that any tax increases would aim to support the country’s savings rate, which is one of the lowest among the world’s top emerging market nations.

Levy also said the government will simplify the tax regime and “harmonize” taxes charged on investment instruments to increase private funding in a market known for the lack of long-term credit.

Still, many investors remain doubtful that Levy will have the autonomy to implement the full set of changes needed to improve the government’s accounts.

New Minister of Planning Nelson Barbosa on Saturday publicly recanted his comments that the government planned to modify the minimum wage adjustment formula. Brazilian media reported that Rousseff asked Barbosa to change his stance given past promises made to union leaders.

Additional reporting by AFP

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