UPDATE 2-Brazil unveils budget freeze as slowdown looms

Tue Jan 27, 2009 11:40am EST
(Recasts, adds byline, quotes and context throughout)
By Isabel Versiani and Ana Nicolaci da Costa
BRASILIA, Jan 27 (Reuters) - Brazil's government said on Tuesday it will temporarily freeze a quarter of its 2009 budget to keep spending in check, even as a global crisis pushes many countries to spend billions of dollars on stimulus packages.
Brazil, Latin America's largest economy, will freeze 37.2 billion reais ($16.1 billion) as its gauges the effect of an economic slowdown that is expected to eat into tax revenue.
The country traditionally freezes a portion of its budget every year as a way of ensuring that it runs a primary budget surplus, which it uses to service its debts.
This year, the government is targeting a primary budget surplus equal to 4.25 percent of gross domestic product.
"The crisis will mean lower growth and thus our revenues will be lower," Planning Minister Paulo Bernardo said at a news conference in Brasilia, the capital.
"The forecast is that revenues this year will be smaller. Since we need to keep the budget balanced, we will have to reduce spending to adapt to the loss of revenues."
Brazil's economy is expected to slow sharply in 2009 after five years of robust growth, reducing the flow of revenue to the government's coffers.
Data released earlier on Tuesday showed tax revenues fell on an annual basis for a second consecutive month in December. The November figures marked the first drop in tax collection since at least 2004.
Brazil's budget freeze is in stark contrast to the United States, Europe and Asia, where governments are spending hundreds of billions of dollars on stimulus packages to combat the worst economic crisis in decades.
There are growing signs that the global financial crisis is hurting Brazil's economy, knocking its industry and denting its job market, but the central bank has only just started easing monetary policy.
With the benchmark lending rate still at a lofty 12.75 percent -- among the world's highest -- analysts say Brazil still has some monetary leeway before it needs to use fiscal policy to combat the fallout from the crisis.
"You raise spending when you don't have anything left to do, which is the case of the United States and the United Kingdom, which already have very low interest rates," said Alexandre Lintz at chief strategist at BNP Paribas in Sao Paulo.
Bernardo said both current expenditures, or day-to-day government expenses, and investments will be affected by the freeze. Of 100.2 billion reais earmarked for current expenditures 22.6 billion will be frozen, while 14.6 billion of 48.3 billion reais set aside for investments will be withheld. ($1=2.31 reais) (Writing by Ana Nicolaci da Costa, Editing by Chizu Nomiyama)