Brazilian Industry Urges Drastic Cuts in Expenditure and Taxes

Brazilian President Luiz Inácio Lula da Silva called for "more boldness" to help the country’s economy expand at an annual 5% beginning 2007, in spite of recent forecasts from government offices indicating this can only be possible in ten years time.

"The President said we must be bolder; he does not want to run the risk of having the country expand at a rate which is not in line with the vitality he would like to see in coming years," said Brazilian Finance Minister, Guido Mantega, following a meeting between Lula and economic authorities.

The meeting was held the day after the Ministry of Planning’s Applied Economic Research Institute, IPEA, revealed that Brazil would only be expanding 5% a year, beginning in 2017.

This would be caused because of the insufficient generation of electricity and the weak level of investment in infrastructure insisted the Planning Ministry office.

According to IPEA the Brazilian economy will expand 4 to 4.5% in the coming four years and for a 5% rate the investment as percentage of GDP must be 26% compared to the current 20%.

The diagnosis coincides with the National Confederation of Industry estimate which favors a drastic cut in government expenditure and taxes, which are equivalent to 38% of GDP.

Mr. Mantega, Planning Minister Paulo Bernardo and the Cabinet Chief Dilma Rousseff have plans to cut spending both capping government salaries and reducing privileges in different administration offices.

"This does not necessarily mean we’re cutting expenditure but rather re-defining the expansion criteria, which can’t grow faster than GDP", said Minister Mantega.

Savings could then be readdressed to capital expenditure and infrastructure.

"We know that improving infrastructure is essential to materialize growth and this consequently needs of greater government spending", added Mantega

"We need to increase infrastructure supply as well as increasing the energy supply." Lula da Silva was re-elected for the 2007/2010 period on promises of sustained growth.

However his first mandate concentrated in orthodox policies keeping inflation under control and growth was below average for developing countries: 0.5% in 2003; 4.9% in 2004; 2.3% in 2005 with prospects of 2.7% in 2006.

President Lula must also be careful since some of the more fundamentalists among his team of advisors and supporters hailed the ousting of Finance Minister Antonio Palocci (2003/06) saying it was the end of a period signaled by "neurotic concern with inflation".

Left wing groups from the ruling coalition also question Brazil’s Central Bank high interest rates policy to contain inflation.

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