The Brazilian gravy train has stopped to a halt as Dilma Rousseff announces a R$ 70 billion cut in government spending.
The government of President Dilma Rousseff of the Workers Party (PT), will make an adjustment of 70 billion reais in 2015.
The measure is aimed, Dilma says, at adjusting government expenses but that economy experts believe are more of a sign to reassure markets.
The figures of the Brazilian economy certainly do not look good as government forecasts for this year predict a 1.2% decline in GDP, according to official numbers.
Inflation has grown and will continue to grow this year. An average grocery purchase that cost R$150 less than a year ago has now reached almost R$200. Government numbers expect inflation to be at around 8.5% in 2015, almost double the official target of 4.5%.
Those numbers can hardly be believed, since the cost of food alone, as it is felt by consumers, not accountants with calculators, has risen over 20% already in the past year.
The announced budget cuts are the biggest adjustment since the Workers’ Party came to power, more than 12 years ago. Furthermore, the government, which has already raised gasoline and electricity prices by adding more taxes to energy costs, sent to Congress more taxing initiatives.
One is to raise rates on bank profits from 15% to 20%. The government also wanted to withdraw an extra pay compensation for all workers who have been at work for more than three months to grant it only to employees with more than six months, but opposition in Parliament has been strong and the measure was withdrawn for now.
All ministries will be affected by the cuts, including education and health. The move, Dilma says, will not affect Lula’s flagship program, the Bolsa Familia, a subsidy for low-income families with school-age children.
Rousseff has tried to reassure supporters by saying that the fiscal measures will not paralyze the government, but her words have fallen short.
In fact, a statement signed by the unions, intellectuals and other groups, among others, two senators from the PT, denounced that the cuts will not bring anything other than more unemployment and recession.
Globalists rejoice on Brazilian austerity
Dilma-style austerity is the logical consequence of the choice for the key post of finance minister, Joaquim Levy, known for favoring cuts and as a specialist in cost containment.
Levy is a fervent follower of IMF economic warfare policies, which is why it was expected to have the type of measures now being announced by the Rousseff government.
The minister said that his intention is to get Brazil to 2013 spending levels, since 2014, an election year, “was a time of excesses” which affected the public deficit. Levy has been criticized by sections of the PT since he took office in January 2015.
The announcement of the new measures coincides with the visit to Brazil of the managing director of International Monetary Fund (IMF), Christine Lagarde.
Lagarde praised the new fiscal policy adjustments announced right after Rousseff assumed her second term as head of the country. According to Lagarde, the results of this policy are already being felt in Brazil.
In the introduction of the 17th Annual Seminar targets for inflation, held in Rio de Janeiro, Lagarde said the Brazilian macroeconomic austerity is “clearly in the right direction.”
The French technocrat echoed the criticisms of the recent rise in interest rates in Brazil in a scenario of economic slowdown patented by the Rousseff government. Under such conditions consumption has cooled off and so has production.
Large companies like General Motors have cut production while other companies have either imposed forced vacations on employees or cut down their work force.
“Our analyzes indicate that a further dose of stimulus could seriously threaten the credibility conquered in the past. Such credibility is particularly important to restore and sustain the prospects of a strong, balanced and inclusive growth,” said Lagarde.
In the presence of the President of the Central Bank of Brazil, Alexandre Tombini, Lagarde defended the need to take into account the “diversity” of the country in designing comprehensive policies and estimated that Latin America still faces difficulties arising from the falling prices of raw materials, decreasing global demand and the “slowdown in domestic demand”.