(Adds analyst comments, sources’ comments, context and background on crisis)
By Alonso Soto
BRASILIA, Jan 5 (Reuters) - Brazil’s President Dilma Rousseff is analyzing changes to pension, tax and labor laws that would stimulate the country’s ailing economy without relaxing her government’s austerity drive, an official with knowledge of the matter told Reuters on Tuesday.
The official, who requested anonymity to speak freely, said the government was also considering additional measures, all designed to reduce business costs and bolster investment, but declined to give further details.
“The country needs stimulus measures, but without incurring fiscal costs,” the official said. “We are not going to give more tax breaks or cheap credit. We are not going to use the past model.”
Two other sources said no decision has been taken on the measures being discussed with politicians and business leaders.
Facing the worst recession in at least 25 years, Rousseff is under pressure from her Workers’ Party and labor unions to jump-start the economy with the fiscal benefits and subsidized credit that eroded Brazil’s finances during her first presidential term from 2011 to 2014.
“It is very difficult to think of any measure that can bring some growth in the short term given the limited fiscal space,” said Juan Jensen, partner with Sao Paulo-based consultancy 4E Consultoria. “The announcement of economic reforms sounds like the best option at this moment, but they are very difficult to implement.”
After a series of public disagreements over the pace of austerity, Rousseff replaced fiscal hawk Joaquim Levy as finance minister, naming leftist economist Nelson Barbosa as his successor.
Barbosa, who was deputy finance minister during Rousseff’s first term, favors a less aggressive fiscal adjustment to avoid suffocating a moribund economy, his aides said.
However, Rousseff has vowed to continue with Levy’s plans to raise taxes and cut expenses to rebalance the overdrawn public accounts during her second term, which ends in 2018, and regain the trust of investors in Latin America’s biggest economy.
That fiscal adjustment is opposed by many of the leftist president’s allies in a rebellious Congress that is expected to decide on her possible impeachment in March. Municipal elections later this year also are raising pressure for her government to spend more.
Rousseff is facing criticism from the Workers’ Party for considering setting a minimum retirement age as part of a reform to limit some of the world’s most generous pension benefits.
Playing against her efforts to jump-start the economy is the central bank, which is expected to resume interest rate hikes at its next meeting on Jan. 20 to curb double-digit inflation.
Data is likely to show the Brazilian economy contracted nearly 4 percent in 2015 as a massive corruption scandal at state-run oil company Petrobras and the deepening political stalemate zapped business confidence, economists said.
Economists expect the economy to contract yet again in 2016, in the first back-to-back annual declines since the Great Depression of the 1930s. (Reporting by Alonso Soto; Editing by Lisa Von Ahn and Paul Simao)