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Brazil unveils cuts as IMF urges fiscal discipline

23 may 2015, 12:50
0
Brazilian President Dilma Rousseff (R) meets with International Monetary Fund Managing Director Christine Lagarde. ©AFP
Brazilian President Dilma Rousseff (R) meets with International Monetary Fund Managing Director Christine Lagarde. ©AFP

 The IMF urged Brazil to get its fiscal house in order to emerge from five years of low growth as South America's largest economy Friday unveiled a package of budget cuts in a move to kickstart a recovery, AFP reports.

Brazil has lost ground since a period of high growth largely fueled by Chinese-led demand for commodities came to an end and the International Monetary Fund (IMF) forecasts GDP will contract by around 1.0 percent this year.

The downturn has forced leftist President Dilma Rousseff to agree to a measure of austerity, while promising to protect social programs that have lifted tens of millions out of poverty over the past decade.

Planning minister Nelson Barbosa duly announced budget cuts of 69.9 billion reais ($23 billion) designed to put the country on track toward achieving surpluses of 1.2 percent of GDP this year and 2.0 percent in 2016–17.

The cuts are the largest in the 12 years that Rousseff's Workers Party has been in office -- predecessor Luiz Inacio Lula da Silva having served two terms from 2003.

Barbosa said the cuts were necessary "in order for the economy to bounce back."

"We are currently in a phase of macroeconomic rebalancing... this fiscal effort is the first necessary step if growth is to recover," added Barbosa.

Brasilia now forecasts that GDP will fall 1.2 percent this year, which would be the country's worst performance in some 25 years.

Visiting IMF chief Christine Lagarde said Brazil could pull out of its slide with a judicious mix of fiscal discipline, a flexible exchange rate and policies that target inflation.

Such an approach, Lagarde said, "constitutes a unique combination to restore growth and put it on a sustainable path."

But she added investors must be convinced that Brazil is "solid and serious" about getting its fiscal house in order, anchoring inflation and developing investment and trade.

"We believe that the policy mix that has been identified is the right recipe to actually start a good recovery and establishing sustainable growth," Lagarde said.


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