MercoPress. South Atlantic News Agency

Brazil going “to bus” its way out of the economic slowdown

Mantega announced the government will buy 36% of the country’s bus production

The Brazilian government plans to buy over a third of the country’s output of buses and reduce borrowing costs for state-funded investments to a record as part of a new round of measures to revive stalled growth.

The long-term reference rate for loans from the BNDES state development bank will be cut to a record 5.5% from 6%, Finance Minister Guido Mantega said on Wednesday. The government will also increase purchases of trucks, buses, ambulances, defence equipment and tractors by 6.6 billion Reais (3.2 billion dollars) in the second half of the year, he said.

In just over a month, analysts have shaved more than one percentage point off their 2012 growth estimate for Brazil, lowering it to 2.18%, according to a central bank survey released June 25. Economists predict the biggest emerging market after China will slow for a second straight year even as the government has cut interest rates, granted tax breaks on industrial and consumer goods and provided more subsidized credit. The economy grew 2.7% last year after expanding 7.5% in 2010.

“Brasil is one the countries that will withstand this crisis because we opted for a development model that relies on the strength of the Brazilian economy, of our domestic market and in the strength of our workers and entrepreneurs,” President Dilma Rousseff said on Wednesday at an event in Brasilia.

Marcopolo SA, a Brazilian truck and bus body manufacturer, rose 6.5% in Sao Paulo after the government said it plans to buy 8.570 buses in the second half of 2012, the equivalent of 36% of projected output, according to the Finance Ministry. The purchases will cost the government 1.7 billion Reais.

The government will also buy 8.000 trucks, 7.971 tractors and construction vehicles and 2.125 ambulances as part of the plan.

“This isn’t the first measure and won’t be the only one to be taken by the government,” Mantega told reporters in Brasilia. “It’s very important to keep confidence in place. Without confidence, business leaders don’t invest and people don’t buy because they’re afraid of losing their job.”

The moves follow a 65 billion-Real stimulus package announced in April that included tax cuts and more subsidized credit.

Sales of trucks plunged 29% in May from a year ago, according to Brazil’s automakers association, known as Anfavea. Bus sales fell 20% in the same period, according to the association.

Since August, central bank President Alexandre Tombini has reduced the overnight rate by 400 basis points to a record 8.5% in a bid to shield the economy from the Euro debt crisis. Traders expect the rate to fall to at least 7.75% this year, according to interest rate futures.

“Both the interest rate cuts and the weak exchange rate are going to continue, spurring an important structural change in the economy” Mantega told reporters in Brasilia. “This process hasn’t ended it’s only beginning and will continue over the coming months.”

Brazil’s industrial output contracted 0.2% in April after falling 0.5% in March even as the government increased its efforts to boost growth.

In May, Brazil’s consumer loan default rate rose to 8%, the highest in 30 months, reinforcing concern that households struggling with debt could further dent Brazil’s credit-driven growth model.