Brazil's Congress loosens 2014 fiscal goal in bruising vote

Reuters News
Posted: Dec 04, 2014 2:14 AM

By Anthony Boadle

BRASILIA (Reuters) - President Dilma Rousseff won a hard-fought victory in Brazil's Congress early on Thursday with the passage of legislation that frees her administration from complying with its fiscal savings goal for this year.

The amendment to the budget law, approved in a heated 17-hour joint session of Congress, allows her government to deduct infrastructure investments and tax breaks to lower the primary surplus goal to one tenth of its original level.

Since narrowly winning re-election in October, Rousseff has vowed more fiscal discipline and picked a fiscal hawk as her next finance minister to regain the trust of investors and avert a credit rating downgrade.

Her government continues to send mixed signals, however. On Wednesday, it approved a 30 billion reais ($11.7 billion) loan to state development bank BNDES, a transfer that has been widely criticized in the past for increasing Brazil's debt burden.

Fiscal accounts have deteriorated on Rousseff's watch to the point where Brazil risks ending 2014 with its first annual primary deficit in two decades.

Rousseff's opponents accused her allies in Congress of throwing fiscal discipline out of the window and handing the president a blank check to spend recklessly.

Approval of the amendment took two weeks due to obstruction tactics by opposition parties and lukewarm support from within Rousseff's coalition.

Rousseff secured the votes of her allies by decreeing a 444 million reais increase in funds for pork barrel projects that depended on passage of the budget goal amendment.

"That was blackmail to pass a law that will free President Rousseff of the crime of fiscal irresponsibility," said Duarte Nogueira, of the main opposition party, the PSDB. "There'll be no control over public accounts. Fiscal discipline will be lost"

Congressmen almost came to blows in a rowdy session on Tuesday night that ended with guards clearing out protesters that were shouting at pro-government speakers from the gallery. They shouted "Go back to Cuba" and "slut" at a leftist senator.

The amendment allows the government to deduct 106 billion reais from its primary surplus goal of 116 billion reais, which lowers the fiscal savings target to the equivalent of 0.19 percent of gross domestic product from the official goal of 1.9 percent. In the first 10 months of this year, the primary balance showed a deficit of 11.5 billion reais.

(Reporting by Anthony Boadle and Alonso Soto; Editing by Michael Perry)