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SAO PAULO, Dec 10 (Reuters) - Brazilian cities are pressing ahead with plans to raise bus fares, despite threats of a repeat of street protests that shook President Dilma's Rousseff's government last year.
The fare hikes are seen as an important test case for Rousseff's plan to roll out several unpopular measures, including higher taxes and budget cuts, in an effort to correct imbalances plaguing Latin America's largest economy.
The last time cities tried to hike fares 7 percent to 10 percent in mid-2013, students and other activists led demonstrations that brought out more than 1 million people across Brazil. The protests sparked a sharp drop in Rousseff's popularity, and she pressured mayors to roll back the fare hikes.
The protests died down, but cities ended up paying subsidies to bus companies to prevent them from going bankrupt. Sao Paulo, Brazil's biggest city, could be on the hook for as much as 2 billion reais ($769 million) in subsidies next year, which city officials say would prevent investments elsewhere.
This time around, city officials plan to more clearly explain why a hike, estimated at about 15 percent by some analysts, is necessary. They also hope a less-charged political climate, following Rousseff's re-election in October, will help prevent a repeat of last year.
"We can spend a billion in subsidies or we could spend it on a hospital ... That's the discussion we're having," said Maria Fernanda Conti, a spokeswoman for Sao Paulo's city hall.
Other cities also plan bus fare hikes, and Rousseff's government believes the timing of the move in January, when most students are on vacation, should help prevent new protests, a senior official told Reuters.
But some protest groups, with members believed to number in the hundreds or low thousands, plan to stop the hikes again.
"The government never reached out to us," said Nina Capello, a member of the "Free Fare Movement," a group demanding free public transportation for all. "If society is able to organize and mobilize, we can prevent this increase."
The June 2013 protests were arguably unique.
At the time, frustration was mounting over high inflation and a slowdown in economic growth under Rousseff. A police crackdown of a Free Fare protest in Sao Paulo brought thousands of sympathizers into the streets, and the marches mushroomed into a broad movement against all elected officials.
Many protests ended in vandalism and clashes with police, though, which soon alienated much of the middle class and contributed to a sharp drop in participation.
Earlier this year, Sao Paulo's city government hired Ernst and Young to audit bus concessions and head off criticism by revealing how much the companies earn and the quality of their service.
"With last year's protests, many more people got involved in this discussion than we had before," said Conti, the Sao Paulo official. "The audit came about because of that."
Initial portions of the Ernst & Young report, which is due to be presented in its final version this week, suggest Sao Paulo could force bus companies to operate with lower profit margins and face higher fines for poor service, in return for renewing their concessions.
The debate reflects a broader problem involving government-controlled prices under Rousseff.
The government capped such prices in recent years to prevent inflation - which has hovered around 6.5 percent, the ceiling of the government's target range - from rising even further. Government-controlled prices make up about 23 percent of Brazil's main inflation index.
Now, with Rousseff re-elected and investors clamoring for the incoming finance minister, Joaquim Levy, to restore order to the country's fiscal accounts, officials are prepared to incur a certain amount of public anger.
"In some cases we've gotten to the point where the opposing pressure doesn't matter much," said Santander Brasil economist Tatiana Pinheiro. "It's bad, it's bitter medicine, but it has to be done." ($1 = 2.60 Brazilian reais) (Additional reporting by Brian Winter; Editing by Brian Winter and Jeffrey Benkoe)