(Adds Barbosa, analyst comments)
By Alonso Soto
BRASILIA, Jan 28 (Reuters) - Brazil will release 83 billion reais ($20.4 billion) in new credit from state-run banks for farmers, builders and other businesses suffering in a shrinking economy, resuming stimulus efforts it had largely eschewed in last year’s austerity drive.
Finance Minister Nelson Barbosa told reporters on Thursday the new credit measures were aimed at helping companies ride out a recession that is expected to be Brazil’s worst in a century.
“There is plenty of demand for these resources,” Barbosa told reporters. “This credit comes at no cost to the Treasury. These are resources those banks already have at hand.”
Yet the latest stimulus measures have raised fears among investors that President Dilma Rousseff is returning to the loose fiscal policies of her first term, which eroded Brazil’s public accounts and cost the country its investment-grade rating.
Rousseff said more credit from state banks would not undermine efforts to curb government spending and bring down the annual rate of inflation that exceeded 10 percent last year.
Still, the availability of credit may not be enough to boost capital spending in Brazil, where companies have slashed investment for nine straight quarters as demand craters and a political crisis batters business confidence.
“Uncertainty created by the political environment has caused companies to reduce spending plans and reduce their leverage, limiting the effectiveness of these credit measures,” said Neil Shearing, chief emerging markets economist with Capital Economics in New York.
Shearing added the extra credit will complicate the central bank’s efforts to battle inflation that reached a 12-year high last year.
The government plans to tap at least 32 billion reais from the workers’ pension fund known as FGTS, with 10 billion reais going to housing and another 22 billion reais for infrastructure projects, according to Barbosa.
Plans also include 15 billion reais for financing capital goods, 10 billion reais for rural credit programs and 5 billion reais for companies’ working capital.
$1 = 4.0685 Brazilian reais Writing by Brad Haynes and Alonso Soto; Editing by Grant McCool and Alan Crosby