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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  • Show Comments (2)

  • ch.c.

    Oops ! Typing mistake….
    the World Bank and the economists estimates are for 3,5 % for 2007 AND 2008

  • ch.c.

    2,7 % in 2006 ??????
    This shows how unclever or liar Mantega is and has been !
    He maintained his estimates at 4 % just before and even after…. the recent election !
    This guy should go back to the first grade learning the basis of economic estimates !
    And if he is effectively well trained…he should resign or be fired…because more wrong there is not ! Or be accountable for his total failures !
    Unless he voluntarily lied….to get more votes for his chief Lula !

    As to the promises for 2007 and beyond, it is again all over the same promises…never delivered by Lula and his gang….since day 1 of his first mandate !
    Every year Lula promised 5 % + for the following year ! Always !

    Promises never delivered…just as the promises for the infrastructure investments needed.

    Why should anyone trust that 2007 and beyond shoulÀƒ©d finally bear the 5 % ?

    Just read the IPEA estimates, themselves on the rosy side, since the World Bank and the economists, included the Brazilian economists, have for the time being an estimate of 3,5 for 2007 AND 2007 !

    the Funny thing is that since 2005 revisions have always been DOWN not UP !
    The only ones keeping high estimates are the government people…on purpose ! Guess
    why ! Strange that the Brazilian population still swallow all these lies !

    Finally the reality is that 2006 will be a repeat of 2005 : Brazil will have the worst economic growth of ALL the LATAM and Caribean nations…after HaÀƒ¯ti !
    But read what Lula said at the end of last year concerning 2006 : HE guaranteed
    an exceptional vintage (his own words) for 2006 of 5 % + !
    Reality will be around 2,6 % of 50 % less than guaranteed !
    Impressive !

    Yesss, Lula promises and guarantees are really not worth more than his previous promises and guarantees…never delivered anyway !

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