BRASILIA, Brazil, Sept 25: Brazil's closely-watched debt burden is set this year to stage its biggest decline in a decade as years of cost-cutting and hard-won stability finally pay off, analysts said on Friday.
For President Luiz Inacio Lula da Silva, a former labour leader who once toyed with defaulting on Brazil's foreign debt, the achievement may be the ultimate proof his center-left government is fully committed to fiscal responsibility.
Helped by swelling tax revenues generated by strong growth, Lula decided this week to raise the country's 2004 primary budget surplus goal to 4.5 per cent of gross domestic product from 4.25 per cent of GDP, allowing more debt to erica analyst at IDEAGlobal. Its been an exceptional fiscal performance.
Brazil has been on an International Monetary Fund lifeline since 1998 and tough budget goals were adopted by the former centrist government of President Fernando Henrique Ccision to adopt yet more ambitious fiscal goals.
Altamir Lopes, head of the central bank's economics department, said on Friday the change in the 2004 primary surplus goal, which excludes debt servicing costs, means Brazil's public debt will rapid fall in one year," said Mauricio Oreng, an economist at Unibanco, predicting it will fall as low as 54 percent.
Since the introduction of the Real Plan (with the launch of the real currency in 1994) we have never had such a large fall.
Debt stood at 30 per cent in 1994. Its highest level since then in a single month was in August 2002, when it hit to reduce Brazil's debt burden, which pushes interest rates higher and ultimately is one of the main reasons why Brazilian growth has lagged behind many emerging markets in recent years.
High growth this year, made possible by lower interest rate the economy contracted 0.2 per cent in 2003, its worst performance in a decade.
August primary surplus figures released Friday showed high tax revenues allowed Brazil to beat a key target under its $40 billion IMF loan deal with billions of dollar interest rate, which was raised last week for the first time in 19 months, because of rising inflation.
The Central Bank also implicitly raised its central 2005 inflation goal this week to 5.1 per cent from 4.5 per cent, implying that price pressures .
We've seen the Central Bank hiking rates before, oblivious to the damage on the fiscal accounts, said Krohn. Whenever you tighten, there are trade-offs.-Reuters