MercoPress. South Atlantic News Agency

Brazilian minister confirms orthodox economic policy

Brazilian Finance minister Antonio Palocci rejected growing speculations about dissent in the government over current orthodox policies and discarded any possible resurgence of inflation.

"There's no dissent in government regarding the course of economic policies. On the contrary we're all convinced that Brazil is on the right track", underlined Mr. Palocci in a television interview with the country's major and most influential network.

"It wouldn't make sense after all of last year's strong adjustments and all indicators improving that we should change economic policy".

Mr. Palocci's comments follow several weeks of rumours in local financial markets about President Lula da Silva apparent "impatience" with the absence of strong results for domestic demand and employment after a whole year of fiscal restriction.

Mr. Palocci and his team have been praised overseas for containing inflation and cutting government expenditure, however the Brazilian economy in 2003 managed a paltry 0,5%, the worst in over a decade and not even enough to cover population growth.

Last week when Mr. Palocci was addressing the Davos Forum in Switzerland trying to attract investments for Brazil, the all powerful Minister of the Presidency, Jose Dirceu was strongly lobbying for a "flexibilisation" of the current economic policy, according to Brazilian press reports.

However Mr. Palocci pointed out that "Mr. Dirceu has done an extraordinary contribution to the stability of the economy". And sources close to Mr. Dirceu also denied the speculation, "There's no conflict among ministers".

Mr. Palocci also tried to calm markets regarding inflation by anticipating that interest rates will continue to drop in 2004, but "at a slower rhythm than in 2003".

In its latest meeting, the Copom, the Central Bank Committee on Monetary Policy left rates unchanged after seven successive cuts last year, mentioning concern over inflation.

"Copom has temporarily suspended rate cuts but this does not mean a change in the reduction perspective tendency", added the Brazilian Finance minister.

This has led Brazilian market analysts to believe that the Selic (basic rate) currently at 16,5% will be cut during 2004 to 14,5% instead of 13,5% as originally forecasted.

Analysts are also on the outlook to see if President Lula da Silva keeps his promise of greater autonomy for the Central Bank, (ensuring less political interference) a proposal on which he seems to have back-stepped last week when he described the debate as "academic". Furthermore Mr. Palocci on confirming the promise of greater autonomy also underlined that "economic growth and job creation" figured first in the agenda.