MercoPress. South Atlantic News Agency

Brazil acts to stabilise fuel price.

In the face of rising international oil prices and the threat of war in Iraq, Brazil's government is taking measures to limit domestic fuel price fluctuations.

The government will push ahead in the coming weeks with plans to implement a tax to stabilise fuel prices, Dilma Rouseff, the energy minister. While oil prices rise, the tax will be reduced, and vice versa. "It will be implemented as soon as we see [oil] prices entering a lower range," she said.

Fuel price increases, because of a weaker currency and rising oil prices, have helped push inflation beyond government targets for two consecutive years. The announcement may help calm investors, who feared permanent price controls.

The tax, Ms Rouseff said, was the best method for protecting the Brazilian consumer from oil price and currency fluctuations without government intervention that negatively affects the investment climate.

"It respects market forces and competitive fuel prices, which are strategic for Petrobras [the state oil company] and the country's market opening," Ms Rouseff said.

Brazil's oil industry is attracting billions of dollars in foreign investment and last year was the fastest growth sector in the Brazilian economy: 10.4 per cent versus 1.52 per cent growth in gross domestic product.

Ms Rouseff dismissed press reports suggesting the proposal had been scrapped because of concern that it might erode government revenue. "On the contrary, Cide [as the tax is called] will increase tax revenue."

The government, Ms Rouseff admitted, had already adopted de facto price stabilisation measures but said those were temporary. She acknowledged that Petrobras, which dominates domestic oil refining, had in recent weeks delayed increases in fuel prices, which it normally fixes in line with the oil and currency markets.

Yet she insisted that the company would not immediately pass on a fall in world oil prices to domestic consumers.

"If, as we expect, oil prices fall after a possible war begins, we will maintain prices at their current levels for some time to compensate [Petrobras] for losses so far."