UPDATE 2-Brazil's Mantega: No plans for new tax cuts

Tue Apr 28, 2009 6:00pm EDT
(Adds details on credit line to Uruguay, U.S. banks)
By Daniel Bases and Walter Brandimarte
NEW YORK, April 28 (Reuters) - Brazil has no plans to implement new tax cuts or extend existing tax breaks for the automobile industry because consumer confidence is returning, Finance Minister Guido Mantega said on Tuesday.
But Latin America's largest economy is negotiating with other South American countries to provide credit lines for importers of Brazilian goods, Mantega said, adding Uruguay may follow Argentina to benefit from such agreements.
"The government has already taken the necessary measures to activate the economy," Mantega told Reuters in New York. "We don't foresee new tax breaks."
Brasilia also "does not believe it is necessary" to extend tax breaks for the auto industry because car sales in March were already higher than a year earlier, he said.
"Consumers are gaining confidence as they remain employed. And we're going to create more jobs in Brazil this year than in 2008," he said.
Brazil reduced consumer taxes on new cars in December for a three-month period and then renewed the measure until the end of June. The move provided key support to the country's large automobile industry -- a major employer -- which has been among the worst hit by the global financial crisis.
Mantega said that Brazil's economy still needed looser monetary policy and "proper conditions" are in place for further interest rate cuts.
Inflation expectations are below the government's mid-range target of 4.5 percent and, according to the minister, economic growth is currently between zero to 2.0 percent, which gives room for more interest rate cuts.
Brazil's central bank on Wednesday is expected to reduce its benchmark interest rate by 100 basis points to a record low of 10.25 percent, according to a Reuters poll.
Brazil's economy is due to grow at an annualized rate of 3-4 percent in the fourth quarter of this year, Mantega reiterated, a forecast that many economists say is optimistic. The International Monetary Fund expects the economy to shrink by 1.3 percent in 2009.
In a move to create demand for its goods abroad, Brazil plans to extend to more South American countries its so-called CCR credit line that smooths the settlement of trade payments.
Last week Brazil increased that line with Argentina to $1.5 billion from $120 million and, according to Mantega, there are ongoing discussions with Uruguay.
Despite an expected fall in Brazil's exports, a recent recovery in the price of commodities will likely allow the Brazilian currency, the real BRBY, to remain at a "balanced" level this year, which would help exporters, Mantega said.
The real weakened more than 35 percent between September and December last year when it sank to 4.5 reais to the dollar. It has recovered more than 10 percent since then and currently trades around 2.2 reais per dollar.