Brazil government unveils plan for slashing public spending

Acting President Michel Temer announced Tuesday (May 24) he will submit to Congress a constitutional amendment bill limiting public spending in Brazil. Expenditures, he says, are currently on an unsustainable trajectory. The leader further announced he will use funds from the so-called Sovereign Fund of Brazil (a sort of savings account of the federal government) to curb the public deficit. He noted these resources add up to some $560 million.

The Sovereign Fund was created in 2008 after a program was announced to manage the oil exploration in the pre-salt layer. The goal was to make it serve as a savings account with what is left of the primary surplus, in a bid, among other purposes, to protect the Brazilian economy from crises and spur investment in assets both in Brazil and abroad.

Also Tuesday (24), Finance Minister Henrique Meirelles announced that the measures for cutting government spending include the return of $28 billion in assets from the National Economic and Social Development Bank (BNDES) to the National Treasury.

Setting a ceiling for the public debt will be proposed to Congress for approval in the form of a constitutional amendment bill, Meirelles explained. Should lawmakers pass the bill, the minister maintains, the country's public debt will be considerably lowered in relation to Brazil's gross domestic product in three years' time.

“It's a significant reduction we'll be looking at. In the same bill, we'll propose a change in how [expenditures in the budget] are earmarked for health care and education, which should be brought in line with the proposed ceiling,” the minister declared. In his view, the moves should bring expenditures under a more strict control in the upcoming years, as well as “lead to long-term effects.” “What matters is to make sure Brazil has a solvent status,” he argued.

Meirelles further argues that the idea is to draw up a plan with multiannual effects and a permanent impact. Emphasis should be driving the public debt onto a sustainable trajectory in the long run. Meirelles has repeatedly argued that, if no action is taken, the debt could soar above 80 percent of the country's GDP in only a few years, nearing a level twice as high the average in developing countries.

Brazil's Development Bank

Regarding the return of assets worth $28 billion from the BNDES to the National Treasury, Meirelles said that first $11.2 billion will be given back, followed by two installments of $8.4 billion each. According to the Finance Ministry, the BNDES has enough money in its coffers to carry out the transactions and meet its financing commitments in the next two years.

President Temer said the measure is expected to represent a $2 billion slash in the Treasury's spending every year. “These funds were idle [at the BNDES] and generating unnecessary costs,” Meirelles pointed out. The initiatives announced by the government aim at curbing expenditures, making public spending more efficient and improving services for the poor, the minister said.

On the domestic stage, the market showed a positive reaction to the announcements, with the stock exchange on the rise and the dollar down.

Translated by Fabrício Ferreira