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Brazilian Congress Approves Budget Law Against President Rousseff’s Wishes

Brazilian senator José Sarney The Brazilian Congress has just approved a Budget Guidelines Law (LDO) for 2012. It sets the minimum wage for next year at 616.34 reais (US$ 392.07) and orders a real adjustment (above inflation) in payment benefits for Social Security (INSS) pensioners and retirees.`

Several items on the LDO displease the government and might be vetoed by Brazilian president Dilma Rousseff. Among other things, the legislators excluded a text inserted by the government that provided for  automatic spending with the Growth Acceleration Program (PAC).

The president of the Senate, and former president, José Sarney (PMDB from Amapá state) praised the new law: “While in Europe they are cutting back on entitlements, here in Brazil and other developing countries, we are going in the opposite direction as we guarantee more social rights.”

The LDO bill approved preserved the administration’s macroeconomic parameters: GDP growth this year is expected to be 4.5% and 5% in 2012. The inflation target, as measured by the Broad Consumer Price Index (IPCA), is 5% this year, and 4.5% in 2012.

The bill also allocates money for congressional earmarks, along with what the executive branch requested for its Accelerated Growth Program (PAC) and social assistance projects (reduction of extreme misery – Brasil Sem Miséria).

With regard to the primary surplus target, the LDO sets it at 139.822 billion reais (US$ 88.88) for the Union, states and municipalities, of which 96.973 billion reais (US$ 61.65 billion) is to come from the federal government. However, Congress restricted the amount that can be used in the PAC to 40.6 billion reais (US$ 25.81).

The approved LDO limits the nominal deficit to 0.87% of GDP and calls for current expenditures – payroll outlays, for example – to be less than any increase in government spending.

In the case of public works halted due to watchdog investigations by the Tribunal de Contas da União – TCU the LDO requires examination of the situation by the Congressional Joint Budget Commission within 40 days of the conclusion of auditing. Furthermore, any such suspensions can only be canceled by the commission.

Finally, the LDO approved by the Congress also prohibits the executive branch from executing spending projects before they are approved in the General Budget (Orçamento Geral da União)

The LDO sets guidelines, and as such is a sort of preliminary look at what the final budget will look like; the General Budget is the real budget and is what really counts. It will go to Congress for approval later in the year.

The LDO bill the executive branch sent Congress permitted spending on PAC projects and allowed allocations to state-run enterprises until December 31 without budgetary approval. This conflict between the executive branch and the legislature will have to be ironed out in the General Budget.

Trade Surplus

In the first six months of 2011, Brazil’s farm sector exported goods worth over US$ 43 billion and imported US$ 8.3 billion, for a surplus of almost $35 billion. The surplus was up 20.5%, compared to the same period last year; exports up 23.4%; and imports up 36.8%.

According to the Brazilian Ministry of Agriculture, the strong performance was led by soy products (grain, flakes and oil), meats, ethanol and sugar (sugarcane products), forest products and coffee. Those five segments represented slightly over 82% of all sector exports, worth US$ 35.5 billion.

China remains Brazil’s number one trade partner. Russia, although it banned meat products from Brazil in June, actually increased its imports of farm products in the period by 41%, enabling it to move into third place on the list of big importers of Brazilian goods, just behind the United States and ahead of Holland.

During the period from July 2010 to June 2011, Brazil’s total exports reached $84.6 billion, an increase of 23.9%, compared to the previous 12-month period between July 2009 and June 201, when exports reached $68.3 billion. At the same time, imports rose 35.7%, going from $11.5 billion to $15.6 billion. As a result, the cumulative trade surplus for the last 12 months is now $68.9 billion.

ABr

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