Tax Cuts and Spending Caps to Make Brazil Grow 5% a Year

Brazilian President Luiz Inácio Lula da Silva ordered his top advisers yesterday to craft a bold plan to spur South America’s largest economy, which he has said can grow at least 5% annually.

Silva has come under withering criticism for Brazil’s economic growth that has lagged behind the rest of Latin America, but repeatedly said during his re-election campaign that he believes the economy can grow 5% to 6% in the coming years.

Yesterday, November 14, after a cabinet meeting with Lula, Finance Minister Guido Mantega said that the economic plan would likely include tax reductions, spending caps and increased government investment in infrastructure.

"The president received our recommendations well," Mantega told reporters in the capital of Brasí­lia. "He requested bold action because he doesn’t want to run the risk that the country grows with less vitality than he has been seeking."

No final decisions were made, but Mantega said some elements of the package could be put into place before the year’s end so that they can have an effect on next year’s growth.

Brazil’s economy is expected to be slightly less than 3% for 2006, following 2.3% gross domestic product growth last year. Predictions call for the measure of all goods and services produced in Brazil to reach 3.5% next year and in 2008.

But the government-run IPEA Economic Research Institute suggested this week that Brazilian growth is likely to stay stuck at 4% annually from 2008 through 2010, partly due to high taxes and lax energy investment.

Silva was re-elected in a landslide during an October 29 runoff after a tough challenge from Geraldo Alckmin, the business-friendly former governor of Sao Paulo state, the country’s industry and finance center.

Alckmin, who surprised analysts by denying Silva a first-round win on October 1st, repeatedly attacked Silva for sky-high interest rates that crimped Brazilian growth during Silva’s first term and left Latin America’s largest nation trailing the region.

GDP growth in Chile and Mexico for 2006 is expected to reach about 5% this year.

Leading economists and business executives also insist that pension reform to trim growing Brazilian debt is needed to put the nation on a more secure economic path.

Mantega said that pension reforms are being reviewed.

Mercopress

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