Brazil Cuts US$ 30 Bi from Budget, Freezes Hiring and Starts Crackdown on Fraud

    Brazilian minister Miriam Belchior

    Brazilian minister Miriam Belchior Brazil will cut 50 billion reais (US$ 30 billion) from its 2011 budget. The announcement was made by Brazilian ministers of Finance, Guido Mantega, and Planning, Miriam Belchior. According to Belchior, the Dilma Rousseff administration will contract the Getúlio Vargas Foundation to make an audit of the federal payroll. The objective will be to find ways to reduce direct government costs.

    Meanwhile, according to Belchior, the government will reduce civil servant travel and per diems by 50%, prohibit new service contracts and end purchases of vehicles. The government will also halt all purchases, renovations or renting of homes and apartments.

    As for the federal payroll, Belchior explained that the government would be standardizing it, so it would be easier to cross-check data and spot irregularities.

    “In order to spend better we are going to have to go through the payroll with a fine-tooth comb,” said the minister. She pointed out that total payroll outlays by the government are expected to be 199.8 billion reais (US$ 120 billion)  this year, an increase of 33 billion reais (US$ 19.7 billion), compared to 2010. The additional expenses are due to real salary increases and new civil servants, she explained.

    In order to control spending outside the federal government, states will be encouraged to enroll in the integrated human resources control system (“Siape”) so their payroll information can be checked for people with more than one government job (which is illegal) or retirees receiving more than one retirement payment (also illegal). The data from the 13 states already enrolled in the Siape will be cross-checked immediately in the Getúlio Vargas audit.

    Efficient spending means things like shared procurement for goods and services and a crackdown on fraud in bonuses and unemployment insurance payments, said the minister.

    “This is the only way we can ensure a real gain in GDP of 5% next year and a primary surplus of 117.9 billion reais,” declared Miriam Belchior.

    The breakdown on the primary surplus, as explained by the minister, will be 81.8 billion reais from the federal government and 36.1 billion from state and municipal governments. This year, state-run enterprises will not be obligated to run a surplus as part of the primary account.

    Minister Miriam Belchior summed up the budget cuts and the new focus on quality spending by the government by saying that the mantra of the Dilma Rousseff administration could be “doing more with less.”

    Inflationary Pressure

    The budget cuts will reduce marketplace expectations with regard to Brazilian interest rate rises because they will curtail inflation, declared minister of Finance, Guido  Mantega.

    “Everybody has problems with inflation nowadays. It is not just us. But we are moving to keep things on track so we achieve our inflation goal of 4.5% and these budget cuts are part of the effort. We are not sitting on our hands watching inflation rise,” said the minister.

    Mantega added that an important part of the effort to cut spending, hold  interest rates down and keep inflation under control would be a minimum wage of 545 reais (US$ 327) as proposed by the government.

    He pointed out that an adjustment of the income tax tables of 4.5%, as demanded by labor unions, was going to cost the government 2.2 billion (US$ 1.3 billion) reais in lost revenue. The negotiations on the minimum wage and the income tax table adjustment would move ahead in tandem, said the minister.

    Mantega also announced that interest rates charged by the Brazilian Development Bank (“BNDES”) will be slightly higher this year in that they will not receive government subsidies.

    Brazil’s Minister of Planning, Miriam Belchior, explained that the budget cuts will mean a halt in government hiring, including people who have already passed civil service exams. She added that there will be no new civil service exams this year.

    Belchior went on to say that there may be exceptions and that they will be examined carefully case by case. All new government labor contracts will be looked at under a microscope, she said.

    As for the prohibition on new civil service exams, she asked: “If I am not going to contract people who have already passed exams, how can I have new exams?”

    No PAC Cut

    Minister of Finance, Guido Mantega, as he announced the cuts in the 2011 budget, declared that the cuts will not affect 170.8 billion reais in discretionary spending. Out of that total, 40.14 billion reais is for the Accelerated Growth Program (PAC), which could actually rise another 3.35 billion reais, due to congressional earmarks that have already been approved.

    Mantega explained that the cuts were not aimed at bringing the economy to its knees, but rather “…a small necessary adjustment so the country can continue on the path to lower nominal deficits and a reduction of its net deficit.”

    Mantega, called the budget cuts part of a “fiscal consolidation,” following the economic stimulus program the government used to boost growth and push the country out of the 2009 financial crisis.

    According to Mantega, “The 2011 budget is undergoing fiscal consolidation due to the fact that the government is reversing all the stimuli of 2009 and 2010 that were necessary because of the international financial crisis. Today the economy is growing. Demand is strong. We are removing these incentives,” said the minister.

    The 2011 budget approved by the Congress at the end of last year had total spending at 2.073 trillion reais. With the cuts, it will be 2.023 trillion reais.

    “This means doing the same thing or even more with less. All welfare programs will continue,” said the minister of Finance. “All are maintained so we will still grow, have public and private investments and, at the same time, keep interest rates down.”

    In the past the Brazilian government has put budgetary appropriations on hold – in 2010, the Lula administration did that to over 21 billion reais.  However, according to Mantega, this time the Dilma Rousseff administration has made a definitive cut of 50 billion reais from the 2011 budget.

    “These cuts tend to be permanent. Our intention is to maintain spending at this level until the end of the year, although there may be exceptions. At the moment, there is no plan to modify the 50 billion reais in cuts. But we need room to maneuver because you cannot foresee everything,” declared Mantega.

    According to Mantega, all the ministries were affected by the cuts. “There will have to be a special effort, even sacrifices, for the ministries to operate within the new limits. They will be forced to do so because of the reduction of funds,” said Mantega.

    ABr

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