Brazil & Southern Cone - January 2013 (ISSN 1741-4431)

President Dilma Rousseff refuses to be bullied by the markets into removing her finance minister Guido Mantega, presidential sources told local media in mid January. Mantega arrived back from his summer break on 21 January to a full in-tray, amidst signs that Brazil’s consumer boom is coming off the boil fast, hastened by sticky consumer price inflation and high levels of household debt. The industrial sector also remains stagnant.

Some international commentators have called for Mantega to be removed, arguing that the markets have lost confidence in his policy making (and in the mixed signals he emits). His original 4.5% GDP growth forecast for 2012 was way out; Brazil grew less than 1.0%, on most estimates. Unfazed, Mantega insists that the worst of the industrial downturn is over and that Brazil will recover in 2013. He also points out that consumers are still enjoying full employment, rising real wages and cheaper credit. President Rousseff on 20 January said that Brazil would post “serious, sustainable and systematic” growth in 2013. However, local economists cut their growth forecasts and lifted inflation forecasts in 18 January central bank consensus report, with annual GDP forecasts down to 3.1% from 3.3% a month earlier, and inflation up to 5.65%, from 5.5% previously. Inflation has been over 4.5% for the last 28 months now, and private economists expect it to break the 6.5% ceiling as soon as April. The central bank target is 4.5% +/- 2.5%.

Nonetheless the central bank’s monetary policy committee (Copom) opted to hold the benchmark Selic interest rate at its record low of 7.25% on 16 January. The Copom reiterated its belief, for the third consecutive month, that “stable monetary conditions” for a “prolonged period” was the “most suitable strategy”. Many commentators think the central bank needs to update this message.

The government is now resorting to unusual measures to boost growth and limit the rising cost of living. The mayors of both São Paulo and Rio de Janeiro have been asked to hold off on planned rate rises for public transportation, a key factor in the official inflation index. Another tactic was revealed by the newspaper Valor Econômico, which claimed that the central bank was trying to implement an interest rate cut by stealth. According to Valor, Copom is failing to enforce its interest rates by allowing the Interbank Deposit Certificate (CDI) rate, normally tied closely to the Selic, to fall. The difference between the two rates is now double the average over the past decade. Analysts assume that by this undeclared measure Tombini hopes to add impetus to the faltering economy, without announcing another interest rate cut. Many economists are concerned, however, that this will not be enough to keep inflation around the 4.5% target.

There is also concern that the finance ministry is resorting to ever more creative accounting to meet the primary fiscal surplus target of 3.1%. Commentators point out that there is room for a more flexible target and suggest that the Rousseff government should just come out and formally relax the target. That, they argue, would be much healthier than tinkering in the background, which creates uncertainty and mistrust. Writing in Valor, the former finance minister Delfim Netto urged the government to be more transparent about its financial management. “It was never more necessary than now for there to be a relationship of complete confidence between the government and the private sector,” he wrote. “From that will come growth in 2013 and 2014.

• Tax

The federal government’s tax take was BRL1.03trn in 2012 (US$0.5trn), up 0.7% year-on-year and so a real-terms decline.