Downgrade to push Brazil Congress to back austerity measures: FM

File Photo: Joaquim Levy, Brazil’s Finance Minister

File Photo: Joaquim Levy, Brazil’s Finance Minister

The Brazilian Congress has grown increasingly aware of the country’s fiscal challenges, said Finance Minister Joaquim Levy following ratings agency Standard Poor’s downgrade on Wednesday of the country’s sovereign rating into junk territory.

“We think we have increasing awareness in Congress about the need for that, especially after yesterday’s events,” Levy told journalists in Brasilia.

Levy said the downgrade could finally convince Brazilian policy makers, who have been reluctant to back proposed tax hikes, to close the biggest budget deficit in at least two decades.

Brazil’s government is preparing strong measures to cut the country’s budget deficit and plans to have them ready to be debated and voted on in Congress in a couple of weeks, the Finance Minister claimed.

Brazil’s Congress has been divided on the issue of raising taxes, a key plank of Levy’s revival plan. Lawmakers have wrangled with Brazilian President Dilma Rousseff to cut spending and dismantle welfare programs that have brought millions out of poverty.

An OECD report in May said the improvement in quality of life among the Brazilian poor is a direct result of wage increases and social programs and the expansion of access to education.

Meanwhile, Brazil’s finance minister said on Thursday that the government would send to Congress in the coming weeks new fiscal saving measures that would guarantee a primary surplus of 0.7 per cent of gross domestic product in 2016.

Levy said the government would try to beat its own forecast and post a budget surplus next year.

Meanwhile, competing ratings agencies have not indicated that they will follow suit and strip Brazil of its investment grade.

On the contrary, losses in Brazilian markets were mitigated after remarks from a senior Fitch Ratings analyst who said there are still “elements” supporting Brazil’s investment grade.

The world’s three big credit ratings agencies, Moody’s, Fitch and SP, together account for a 90 per cent share of the ratings market.

TBP and Agencies

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