UPDATE 1-Brazil's Levy defends austerity, floats nominal fiscal goal

jueves 7 de mayo de 2015 15:25 GYT

(Adds Levy and analyst comments and context)

By Alonso Soto

BRASILIA May 7 (Reuters) - Brazilian Finance Minister Joaquim Levy on Thursday defended unpopular austerity measures and floated the idea of setting a target to lower the country's ballooning overall budget deficit.

Levy said the belt-tightening should be done quickly to pave the way for faster economic growth, in a response to lawmakers who oppose fiscal saving bills they believe will worsen an expected recession and erode workers' rights.

In a narrow vote, Brazil's House of Deputies approved on Wednesday a watered-down version of a bill to cut unemployment benefits.

"We need these measures, which are indispensable for the economy to recover," Levy said in a event about fiscal responsibility in Brasilia. "The biggest risk for Brazil is a fiscal imbalance."

Levy, a former banking executive and fiscal hawk, has raised taxes and cut expenditures to reach a primary surplus target equivalent to 1.2 percent of the gross domestic product this year. Analysts doubt Levy will be able to reach as the slowdown reduces tax revenues.

However, Levy floated the idea of setting a goal to the country's overall budget deficit, or the excess of operating and debt expenses over revenue. Brazil's 12-month overall deficit skyrocketed to 7.8 percent of GDP in March, its highest since at least 1998, due to rising interest rates and losses stemming from the central bank's currency swap sales.

He warned that adopting such a goal right away could force the government to make deeper spending cuts to lower the narrow the overall gap.

Neil Shearing, a senior economist with Capital Economics, said the a contracting economy will raise Brazil's welfare payments, seriously complicating efforts to improve both the primary and overall fiscal results.

"Brazil seems likely to head deeper into the fiscal mire - meaning the hard work for Mr Levy is just beginning," Shearing said in a note on Thursday. (Reporting by Alonso Soto; Editing by Bernard Orr and Andrew Hay)