Brazil’s deepening political crisis will delay the approval of fiscal measures already in Congress, but the administration will stick with plans to submit additional fiscal and pension reforms soon, Finance Minister Nelson Barbosa said on Wednesday.
Barbosa said the administration of President Dilma Rousseff is in a better position to move ahead with reforms to rebalance public accounts despite market doubts. Brazilian assets have rallied in recent weeks as investors see a possible change in government as a positive development for an economy mired in its worst recession in decades.
Last week’s arrest of Rousseff’s predecessor and mentor, Luiz Inacio Lula da Silva, as part of a massive corruption probe at state-run oil company Petrobras has emboldened opposition calls for the removal of the leftist leader.
Rising political tensions in Brasilia have delayed the approval of new taxes to shore up government finances and regain investors’ trust in the once emerging-market star.
“At this moment the best solution is to combine measures that allow the government to stabilize the economy in the short term and structural fiscal reforms,” Barbosa said. “This government is better qualified and in a better position to move forward those reforms.”
Barbosa, a U.S.-trained economist who is close to Rousseff, acknowledged that the country’s key fiscal savings goal for this year could be reduced further depending on the approval of debt relief from the federal government to cash-strapped states.
A lower savings target again raises fears that Rousseff is relaxing austerity efforts because she is under pressures from allies and foes alike to revive an economy entering its second year of recession.
However, Barbosa said, the government will aim to gradually raise the primary budget surplus to as high as 2.5 percent of gross domestic product to stabilize the country’s debt burden. The primary surplus, or excess revenues prior to interest debt payments, is a key gauge of the country’s capacity to repay its debt.
Last year Brazil posted a primary deficit equivalent to 1.88 percent of GDP, the widest ever. For this year the government cut its surplus goal to a deficit of around 1 percent of GDP.
New surplus goals for the next three years will be revealed in April, Barbosa said.
He reiterated that the government has ruled out injecting fresh capital into Petrobras or using international reserves to bolster the economy.