Government Will Contribute Only 14% to Brazil’s US$ 240 Bi Investment Package

Brazil's president Lula da Silva unveiled on January 22 an economic package with the purpose of boosting growth to 5% annually by 2008 through a combination of public and private spending.

"The challenge now is to accelerate economic growth," said Lula, who was put on the defensive during his reelection campaign last year for slow Brazilian economic expansion that lagged behind the rest of Latin America.

The plan unveiled calls for more than US$ 240 billion through 2010 to repair and build highways, boost electric power generation, expand ports and airports and provide housing and water and sewage service for needy Brazilians.

About US$ 34 billion would be provided by the government and the rest would come from the private sector. Lula da Silva's administration is also planning legislation to give business big tax breaks to participate in the projects.

Brazil will try to bring down government debt by linking increases in government salaries and the national minimum wage to the inflation rate plus no more than 1.5%.

Lula da Silva said that he expects Brazil's economy to expand 4.5% this year, and that the economic package will help boost GDP growth to 5% in 2008 through 2010.

Experts and multilateral organizations believe South America's largest economy will grow only 3.5% this year after estimated 2.8% growth in 2006.

However a pending chapter of the proposal was the private's sector demand for tax and labor law reform and interest rates.

Lula da Silva's administration imposed high interest rates during his first term that brought inflation down to less than 4% and helped eliminate the country's typical boom-and-bust economic cycles.

But the rate also contained growth by making borrowing for businesses extremely expensive and the appreciation of Brazil's currency against the US dollar has hurt sectors of the economy exporters and manufacturers for the domestic market because goods from abroad are often cheaper.

The benchmark Selic rate currently stands at 13.25% with inflation in the range of 4%.

Mercopress

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