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Brazil's Rousseff promises fiscal discipline to investors

Brazil's Rousseff promises fiscal discipline to investors

Posted by Juan Gavasa on December 03, 2014

President Dilma Rousseff said in a letter to investors that one of the main priorities of her second term will be to put Brazil's fiscal accounts in order, sending a strong message that her administration will adopt more market-friendly policies.

In a letter that was read on Tuesday to investors at a JP Morgan conference, Rousseff gave the clearest backing as of yet to her future finance minister, Joaquim Levy, a known fiscal conservative. "Our new economic team will work to gradually but structurally lift our primary surplus so we can stabilize and reduce the public sector's gross debt in relation to GDP," Rousseff said the letter provided to Reuters by the presidency.

Her promises of fiscal discipline are the latest in a series of signals to investors that the leftist leader will abandon some of the interventionist policies blamed for four years of lackluster economic growth.

She said her government is considering reforms that would link future expansion in public spending with economic growth. Her new economic team will also work on measures to expand long-term credit from private sector banks, especially for infrastructure projects.

Despite the message of fiscal prudence, her government approved on Wednesday the transfer of up to 30 billion reais ($11.6 billion) to state development bank, BNDES, according to a decree in the Diario Oficial, the official gazette.

Those hefty transfers have been criticized by investors who say the loans have significantly raised the country's gross debt without stimulating the economy. In the letter, Rousseff also continued to blame Brazil's economic torpor on slow growth abroad and on weak prices for the country's commodities exports.

Many of her critics, however, say that a series of policy missteps and the administration's tolerance of high inflation weighed on the economy by dragging down business and consumer confidence.

Annual inflation has broken out of the central bank's upper limit of its target range of 6.5 percent for the past two months and is expected to continue above target in November's data.

Most economists expect 2015 to show only slightly better growth than this year which is close to finishing 2014 near zero.

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