Brazil's Rousseff rules out 'fiscal populism' as demands rise

Reuters News
Posted: Jul 17, 2013 3:28 PM
Brazil's Rousseff rules out 'fiscal populism' as demands rise

By Alonso Soto

BRASILIA (Reuters) - Brazilian President Dilma Rousseff vowed on Wednesday that her government will not spend beyond its means, rejecting the temptation of increasing outlays to improve public services in the wake of an outburst of national discontent last month.

In one of the most delicate moments of her presidency, Rousseff said her Workers Party government remained committed to the fiscal responsibility needed to curb high inflation and keep public finances in order.

Massive street protests against Brazil's poor public transport, health and education services in June undermined Rousseff's popularity and raised pressure on her government to increase spending ahead of next year's elections.

"Our pact for fiscal stability and inflation control limits any temptation for fiscal populism," Rousseff said in a speech to an advisory group of ministers and business leaders.

"The principal is that we can only spend what we have, so we don't compromise our fiscal balance."

Rousseff plans to freeze some budgeted spending to regain the confidence of investors worried that spending is out of control, even as politicians within her ruling coalition are calling on her to spend more to fix dilapidated hospitals and schools.

However, many investors still doubt Rousseff can tighten the reins on spending because her initial response to the demonstrations was to promise billions of dollars in fresh money to upgrade deficient urban transport.

A presidential vote next year will also add spending pressure on Rousseff, who has seen her re-election chances drop sharply in the aftermath of the protests, recent polls showed.

Voting intentions for Rousseff, who is widely expected to run for re-election, dropped to 33.4 percent from 54.2 percent before the protests, according to a survey by MDA Pesquisa released on Tuesday.

The Rousseff administration has relaxed fiscal rules and bolstered its fiscal accounts with cash transfers to the Treasury, such as bringing forward dividend payments from state-owned companies. The creative accounting was criticized for its lack of transparency.

Higher public spending tends to fuel inflation and add to the country's debt burden.

Rousseff said on Wednesday that inflation will decline and end the year within the official target of between 2.5 percent and 6.5 percent. Annual inflation climbed to a 20-month high of 6.70 percent in June.

"Inflation in Brazil has been falling consistently in the last few months," said Rousseff, adding that inflation in July should be near zero. "We are certain that inflation will end the year within the target."

(Editing by Anthony Boadle and Xavier Briand)