Brazil & Southern Cone - August 2010 (ISSN 1741-4431)

The government's fiscal accounts look in solid shape and improved significantly in the first half of 2010. In the first six months of 2010, the fiscal deficit was 1.1% of GDP, down from 1.7% of GDP at the end of 2009. On an operating level, the government ran a surplus of 1.7% of GDP. The main reason for this was a turnaround in the operating results at state-owned companies, principally the electricity company, the UTE. At the end of 2009, state companies were running a deficit of 0.5% of GDP; over the 12 months to June 2010 they turned that into a surplus of 0.3% of GDP. The main reason for the turnaround was the resumption of more normal weather patterns, and in particular the absence of drought. This allowed the electricity company to exploit its hydro-electric powers stations fully. Arguably, the government's fiscal position is even better because it has set up a US$400m fund to act as a buffer against future droughts and allocated US$150m to this fund in the first half of 2010. This money appears as an expense on the UTE's balance-sheet.

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