Brazil Cuts Budget to the Bone


Brazil Cuts Budget to the Bone

The Brazilian Ministry of Planning has just revised its estimates
for GDP growth for this
year downward from 2.25 percent
to 0.98 percent. As a result it also announced a budget
cut of US$
106 million that will affect several ministries
and even priority government programs like land reform.

by:
AB

 

Following the announcement of a drop in tax revenue in August, the Ministry of Planning went to work and
examined a thousand pages of documents on government expenditures and income. The result is the announcement of a budget cut
of R$ 319 million (US$ 106 million).

The Brazilian government has approximately R$ 51.4 billion (US$ 17.1 billion) that it can spend as it
wishes—so-called discretionary spending (the rest of the budget is entitlements). With this cut, discretionary spending will now total R$
51.1 billion (US$ 17 billion).

The biggest cut was at the Ministry of Transportation, R$ 114 million (US$ 38 million); followed by the Ministry
of Communications, R$ 72 million (US$ 24 million); Environment, R$ 69 million (US$ 23 million). Even government’s
land reform program, a priority, was handed a R$ 30 million (US$ 10 million) budget cut.

According to the executive secretary of the ministry, Nelson Machado, the cuts were made based on a four-year
horizon. "These budget cuts cannot be made looking at a one-year period. You have to take a longer view," explained Machado.

Another factor that had to be taken into consideration was a lower growth estimate for the economy. The Ministry of
Planning has just revised its estimates for GDP growth for this year downward from 2.25 percent to 0.98 percent. "We are
hopeful that the growth news will be better in November," said Machado.

Monetary Base Drops

Brazil’s monetary base (the total of bills and coins in circulation, plus bank reserves) amounted to R$ 64.5 billion
(US$ 21.5 billion) in August, calculated on the basis of average daily balances. According to a report issued September 23 by
the Central Bank, the monetary base fell 2.8 percent during the month but has grown 14.6 percent over the past twelve months.

The currency balance rose 0.9 percent, while bank reserves diminished 8.5 percent, reflecting the reduction in the
reserve requirement rate on demand deposits, beginning August 20.

When end-of-month averages are compared, August’s balance, which amounted to R$ 58.4 billion, was 13.9 percent
lower than the previous month’s and 6.3 percent higher than the balance twelve months ago. The balance of currency
emissions grew 1.5 percent, while the bank reserve balance fell 34.9 percent.

On the other hand, the Broad Consumer Price Index—15 (IPCA-15) rose 0.57 percent in September, more than it
did in August (0.27 percent).

According to the IBGE (Brazilian Institute of Geography and Statistics), the increase in the index reflects higher
prices for some products that weigh on family budgets, such as food, which went from -0.32 percent in August to 0.17 percent
in September, medicines, which went from -0.21 percent to 0.15 percent, gasoline, which went from -1.23 percent to 1.88
percent, and fuel alcohol, which went from -10.33 percent to 6.43 percent.

Another factor that contributed to September’s rise was the readjustment of utility rates in some regions of the
country. For the year, the IPCA-15 has risen a cumulative total of 8.46 percent, and, over the past 12 months, 15.12 percent.

The IPCA-15 is calculated according to the same methodology as the Broad Consumer Price Index (IPCA) and
serves as a preliminary reading of inflation. The difference between the two indexes is in the period over which price data are
gathered. (DAS)

The second preliminary result of the General Market Price Index (IGP-M) for September, released September 17 by
the Getúlio Vargas Foundation (FGV), registered 1.04 percent inflation. The Wholesale Price Index (IPA), responsible for
60 percent of the overall IGP-M, registered an increase of 1.37 percent, as against a 0.06 percent decline in the second
preliminary result for August.

The Consumer Price Index (IPC), responsible for 30 percent of the overall IGP-M, rose 0.52 percent, as against a
0.02 percent increase in the second preliminary result for August. The National Construction Price Index (INCC), which
represents 10 percent of the IGP-M, rose 0.17 percent, well below the 2.27 percent increase registered in the second
preliminary result for August.

So far this year, the IGP-M has risen a cumulative total of 6.96 percent.

Biggest Employers

Commerce and public administration were the sectors that employed the greatest number of people in Brazil in
2001. In commerce, in which there is a heavy concentration of small firms, representing 49.6 percent of all firms listed on the
National Register of Legal Entities (CNPJ), 7.4 million people were employed, almost a quarter of the total working population
during the period, for which they were paid R$ 26.6 billion in salaries and other forms of remuneration. These data come from
the Central Register of Enterprises 2001, released on September 22 by the IBGE.

The second most important activity, direct and indirect public administration, employed 6.2 million people and paid
nearly R$ 74 billion in salaries and other forms of remuneration.

 

The material for this article was supplied by Agência Brasil (AB), the official press agency of the Brazilian
government. Comments are welcome at lia@radiobras.gov.br

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