(Adds potential change to electricity loan terms)
By Alonso Soto
BRASILIA, Jan 13 (Reuters) - The Brazilian government will not give any extra funds to indebted power utilities this year to avoid further harm to its finances, Finance Minister Joaquim Levy said on Tuesday in another sign of fiscal restraint to regain markets’ trust.
Speaking at a breakfast meeting with reporters in Brasilia, Levy also said that to bring electricity rates more in line with reality, consumers should pay the rising prices caused by lower output from hydroelectric power plants.
“Fare realism” will help consumers and companies better plan for the future and ease the burden on strained government coffers, Levy said.
Later in the day a government source told Reuters that Brazil might also ask a group of banks that lent roughly 17.8 billion reais to electric distributors to extend the deadline for repayment. If banks agree, that would help reduce the urgency for distributors to raise rates this year, easing short-term inflationary pressure.
Levy’s comments on Tuesday reinforced a series of recent belt-tightening measures meant to convince investors that President Dilma Rousseff will move away from the interventionist policies that have hurt confidence in Brazil’s once-booming economy.
To recover credibility in financial markets, Levy said the government would have to cut spending and raise some taxes.
“This is a year of economic adjustment and rebalancing to regain growth,” said Levy, adding that any tax increase would have a minimal impact on economic activity.
The Brazilian real rallied against the U.S. dollar on Tuesday as investors cheered Levy’s commitment to improving Brazil’s finances and debt rating.
Levy said bringing Brazil’s gross debt to about 50 percent of gross domestic product was “a positive long-term goal.” He said a decline in gross debt should help the country avoid a credit downgrade.
Rating agencies have warned that Brazil, Latin America’s largest economy, could lose its coveted investment grade if the government continues to spend heavily.
In March, Standard & Poor’s downgraded Brazil to BBB-minus, the agency’s lowest investment-grade rating.
Levy, a University of Chicago economist, said he did not yet know whether he would sit on the board of state-run oil company Petroleo Brasileiro SA, or Petrobras, as his predecessor Guido Mantega did.
He said he believed Petrobras would set fuel prices based on business reasons, signaling a break with a recent policy of suppressing gas prices to control inflation. (Reporting by Alonso Soto; Editing by Franklin Paul, Lisa Von Ahn and Meredith Mazzilli)