(Adds reaction from lawmakers, markets, comment from analysts)
By Walter Brandimarte
RIO DE JANEIRO, Sept 15 (Reuters) - Brazil’s recently announced austerity measures are a positive development, a senior analyst with Moody’s Investors Service said on Tuesday in a vote of confidence for President Dilma Rousseff’s plan to close a 2016 budget deficit.
Yet lawmakers gave the proposed taxes and spending cuts a chilly reception, underscoring doubts that the president can get her defiant coalition behind the unpopular plan.
Political wrangling over the austerity program reinforces investors’ fear that Brazil may soon lose its investment-grade rating from a second agency following Standard & Poor’s decision to downgrade the country to junk last week.
Brazil’s currency fell 1.7 percent in Tuesday trading, giving back strong gains recorded on Monday, when traders cheered the austerity announcement ahead of a congressional backlash.
In an emailed statement on Tuesday, Moody’s analyst Mauro Leos welcomed Rousseff’s plan to address the deficit of 30 billion reais ($7.8 billion) before interest payments projected in her 2016 budget bill. He said such measures are critical for Brazil to preserve its Baa3 credit rating and stable outlook.
“The proposal represents a more balanced approach than previous ones that mostly consisted of revenue measures,” Leos wrote. “This proposal addresses the persistent increase in expenditures over the years.”
The plan includes spending cuts and tax increases totaling 65 billion reais, but half that target depends on the return of a controversial tax on financial transactions known as the CPMF.
The speaker of the lower house of Congress, a former coalition member who has rebelled openly against Rousseff, said the president lacked support to pass the tax.
Even if the government can rally lawmakers to reinstate the CPMF, which expired in 2008, the drawn out legislative fight could push back implementation until late next year, according to political analysts Arko Advice in Brasilia.
“Last time Congress approved the CPMF, it took 10 months ... And today the political environment is far more adverse,” they wrote in note to clients. “That could give you four months of revenue next year, not 32 billion reais as forecast.”
Moody’s analyst Leos said the government’s plan was an “attempt by the government to demonstrate that it is in control.” Still, he recognized that there are signs Brazil will not be able to deliver a primary surplus in 2016 and that the country’s debt ratios are likely to increase further next year.
$1 = 3.87 Brazilian reais Additional reporting by Brad Haynes in Sao Paulo and Anthony Boadle in Brasilia; Editing by Christian Plumb