MercoPress. South Atlantic News Agency

Brazil expects to bolster growth with fiscal discipline starting 2016

Levy said the government will roll back countercyclical measures, in a bid to improve Brazil's public finances, despite fears of a contraction this year.

Brazil needs to act quickly to stabilize its finances and get rid of measures used to stimulate growth during the global downturn in order to bolster expansion in 2016, Finance Minister Joaquim Levy said on Monday.

 Speaking to investors in Sao Paulo, Levy reiterated several times that fiscal discipline is key to gaining the trust of investors and paving the way for an economic recovery.

He defended changes to labor and pension benefits, which are facing a growing chorus of critics in Congress, including lawmakers from President Dilma Rousseff's own party. The measures, announced in December, could save the country up to 18 billion Reais (6.23 billion) this year.

Levy said the government will roll back countercyclical measures, such as higher public spending and tax breaks for businesses, in a bid to improve the country's public finances, despite fears that Brazil's economy could contract this year.

“Fiscal stability is the base of currency and price stability,” Levy said.

Brazil's overall budget deficit of nearly 7% of its GDP is not sustainable, said Levy adding that a decline in the country's public debt tends to favor private financing and that the government needs to find financing alternatives beyond state development bank BNDES.

Levy, a fiscal conservative who took office in January, has started raising taxes and limiting public spending to avoid a credit downgrade this year that could scare off already wary investors.

The tax increases have angered powerful labor unions and lawmakers from the government's loose coalition. Truckers in the country's main soy-and-corn-producing state of Mato Grosso have blocked highways since last week to protest a higher fuel tax.

On Monday Brazil’s Real declined to a decade low as analysts surveyed by the central bank projected a deeper contraction in Latin America’s largest economy.

The currency fell 0.3% to 2.8786 per dollar at the close of trade in Sao Paulo after earlier slipping to a level weaker than 2.9 per dollar for the first time since September 2004.

Analysts forecast a 0.5% contraction in GDP this year, according to the median of about 100 estimates in a weekly central bank survey published Monday. In the prior week, they saw the economy shrinking 0.42%.