Brazil President Gets First Win in Congress in Fight to Contain Public Spending

    Brazilian president, Michel Temer - Marcos Corrêa/PR

    Brazilian president, Michel Temer - Marcos Corrêa/PR A congressional committee in Brazil approved on Thursday a constitutional amendment that would limit public spending to the rate of inflation for 20 years, handing President Michel Temer an initial victory in his plan to plug a widening deficit.

    Left unchecked, public spending at the current rate could lead to fiscal collapse and public accounts insolvency, “a repeat of the Greek tragedy.”

    The lower house committee voted 23-7 to pass the proposal, which will be put to a vote in the full chamber early next week. Its approval requires two votes in the plenary of the lower house and two more in the Senate, needing a three-fifths majority in each chamber.

    Temer’s government is seeking to press ahead with unpopular reforms in the wake of last weekend’s municipal elections.

    Brazilian president, Michel Temer - Marcos Corrêa/PR

    The amendment is designed to curb a budget deficit equivalent to 10% of GDP. Hopes for its passage have made Brazilian assets among the best performing in the world this year despite an economy submerged in a two-year recession.

    In a concession to ease its passage, the government announced on Monday that a cap on health and education expenditure would not go into effect until 2018, rather than next year.

    Leftist opponents have demanded more time to debate a measure they say violates the spirit of Brazil’s 1988 constitution, which made generous provisions for social spending. They plan to seek a court injunction to block the amendment.

    Backers warn that Latin America’s largest nation, which is wrestling with a sprawling corruption scandal, could follow Greece’s path to financial meltdown if spending is not controlled.

    Temer said this week that public debt, which ended last year at a level equivalent to two-thirds of economic output, would reach 100% of GDP by 2024 without the measure.

    “If this change is not adopted, fiscal collapse and the insolvency of public accounts are inevitable,” lawmaker Darcisio Perondi said in his report to the committee studying the measure.

    “Brazil could repeat the tragedy of Greece.” Perondi said the previous government of Dilma Rousseff, who was removed from office in August for breaking budget laws, left an onerous legacy of overdrawn accounts

    The conclusion of municipal elections in most cities across Brazil last weekend allows Temer’s ruling Brazilian Democratic Movement Party (PMDB) and its coalition allies a freer hand to back the measure. A small number of cities face a second-round runoff this month.

    Rousseff’s Accounts Rejected

    The head of the Brazilian Congress, Senator Renan Calheiros, received a report from the Federal Court of Accounts (TCU) on Wednesday (October 5) recommending the rejection of the president Dilma Rousseff’s accounts for 2015.

    The document lists 10 irregularities, among which the omission of liabilities of the federal government with the Banco do Brasil, the Caixa Econômica Federal, the National Social Development Bank (BNDES), and the Guarantee Fund for Length of Service (FGTS).

    According to the report, as was the case in 2014, the government also used resources from Banco do Brasil in 2015 to afford the costs of a funding plan for agriculture, a move that became known as pedalada fiscal (fiscal backpedaling), which led to Rousseff’s impeachment late in August.

    Also in 2015, the government raised spending even though it was aware of the need for cutting costs to meet the fiscal target

    This is the second time the TCU recommends the rejection of the accounts in Rousseff’s administration. The report written for 2014 was also submitted to Congress, but was subsequently approved with reservations by the lawmakers.

    Mercopress/ABr

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