INSIGHT-Levy's Brazil austerity plan under growing fire in Congress

viernes 8 de mayo de 2015 01:00 GYT

By Alonso Soto and Brian Winter

BRASILIA/SAO PAULO May 8 (Reuters) - Brazil Finance Minister Joaquim Levy's four-month-old austerity plan is encountering growing resistance in Congress, as some legislators say his policies may deepen a looming recession.

This week, leaders in President Dilma Rousseff's own Workers' Party refused to pass a reduction in social welfare benefits designed to save the government 9 billion reais ($2.9 billion) this year. Instead, the House of Deputies narrowly passed a watered-down version of the bill that reduced the measures' estimated savings by at least 2 billion reais.

Even though the Bovespa share index is up about 16 percent since Levy took office, the unemployment rate is still rising and so is the nation's primary deficit, raising questions about whether his plan of budget cuts and tax increases will put Brazil's finances in order after years of high deficits and disappointing growth.

"(Levy) is shooting himself in the foot," Paulo Paim, a senior Workers' Party senator who introduced many of the changes in the watered-down bill, told Reuters. "I don't think these measures will make us grow more in the future. They make the recession worse."

Brazil's economy has been stagnant for most of the past four years, and is expected to shrink 1.2 percent this year, according to the average forecast of economists in a weekly central bank poll. Rousseff's generous spending and tax breaks in her first term left Brazil with an overall deficit of 7.8 percent of GDP in the 12 months through March, and contributed to annual inflation currently at 8.2 percent, well above the government's 4.5 percent target.

The time has come for Levy to show austerity "was in fact necessary," Leonardo Picciani, the allied Brazilian Democratic Movement Party's (PMDB) leader in the lower house, told Reuters. "Once the house is in order, we need economic growth to come back."   Continuación...