MercoPress. South Atlantic News Agency

Election year budget.

Brazilian government presented Congress the 2002 budget, which will force much debate since its election year. Budget estimates forecast a GDP increase of 3,7%, based on a controversial estimate of 2,7% for the current year.

"It's been the hardest, most stressful and demanding budget", revealed Budget and Planning Office Minister Martus Tavares, who appealed Congressmen to recall that in spite of election time, the "Brazilian economy faces a world recession, an energy crisis and the Argentine situation".

However analysts believe the 2,7% for 2001 is too optimistic given the fact that in the first quarter the economy grew 4,3% but dropped dramatically to 0,8% in the following quarter, mainly as a direct consequence of the energy shortage that has forced Brazilian industry to slow down production.

Other indicators are also disturbing for analysts. Depreciation of the Brazilian currency vis a vis the US dollar has reached 31% in the first eight months; inflation is one point above target; basic bank interest rates begin at 19%; and worst of all since Brazilian public debt is tied to interest rate or devaluation, servicing the debt which was equivalent to 8% of GDP last year, in 2001 has jumped to 9,21% of GDP.

This means public debt/GDP equation has gone from 49,3% last December to 51,3% June 2001, a situation considered "non sustainable in the mid term".

Budget deficit reached 4,52% of GDP in 2000, and this year's projections indicate 5,34% of GDP. However unemployment continues to drop: in July it reached 6,7%, one point less than a year ago.

Presidential elections will be held in Brazil November 2002. The ruling coalition is divided and has yet to find a common candidate, while the opposition leads comfortably in the polls.