MercoPress. South Atlantic News Agency

Brazil confident of recovery and retaining primary surplus

Finance Minister Mantega said that the primary surplus will be achieved even if it means cutting spending towards the end of 2009.

Finance Minister Guido Mantega said Tuesday that Brazil is not facing fiscal troubles and anti-cyclic policies are showing satisfactory results. His statement was supported by the latest release on retail sales, for May, which was higher than expected.

Mantega said any worry about the country's fiscal situation is unnecessary, stressing that the fiscal situation had improved in the past few years with the country managing significant primary surpluses and which also enabled to save 0.5% of GDP for the Sovereign Fund.

Primary surplus, which excludes interest payments on Brazil's massive public debt, was reduced earlier this year to 2.5% of GDP in 2009 from 3.8% as the government embarked on a public works projects to bolster growth.

However Mantega pointed out that in order to achieve the primary surpluses, “it was necessary for us to cut spending“ and if it is necessary “we will make further spending cuts by the end of the year to guarantee this goal, to make sure we achieve this fiscal result.”

Mantega insisted Brazil would be one of the first countries to recover from the international financial crisis and that the economy will grow more than the global average in the next few years.

Mantega’s statement came in response to the latest report released by the Organization for Economic Cooperation and Development (OECD), which said the increase in public expenditure must be contained in order to increase investment. OECD also cautioned against new fiscal stimulus measures, which should only be adopted “if the economic scenario takes a turn for the worse”.

Additionally, OECD recommended another cut in the Selic basic interest rate which is currently at 9.25%, in order to boost economic recovery.

Meanwhile Brazil’s statistics office, IBGE, reported that retail sales volumes rose more briskly than expected in May, a sign that domestic demand could be recovering. Sales volumes rose 0.8% month-on-month in May, after falling 0.1% in April. The April sales figure was revised upward from a previously reported minus 0.2%.

Retail sales grew 4% compared to May 2008. Nominal sales, as measured by total sales receipts and unadjusted for inflation, rose 0.8% month-on-month in May. Nominal sales rose 8.9% from May 2008.