MercoPress. South Atlantic News Agency

Brazil's Barbosa insists fiscal policies to shrink budget deficit “will be maintained”

“Our economic policy remains in the same direction,” Barbosa told reporters in English on a conference call

Brazil’s new finance minister, Nelson Barbosa, continued his effort to win over investors on Tuesday reiterating that the government of president Dilma Rousseff will maintain the same fiscal policies intended to shrink the budget deficit and cut debt that were favored by his predecessor.

 Barbosa was sworn in Monday, replacing Joaquim Levy at the helm of Brazil’s financial policy, but he is seen by investors as representing the interventionist, free-spending policies favored during Dilma's first term in office.

“Our economic policy remains in the same direction,” Barbosa told reporters in English on a conference call, an almost exact translation of comments he made in a call on Monday with investors.

The Brazilian Real weakened against the dollar and the benchmark Ibovespa stocks index fell after Monday’s call as many analysts said investors are tired of talk and want results. On Tuesday the market reaction was more muted, with the Real closing slightly stronger and the Ibovespa higher.

Levy was brought in at the start of this year to try to regain the confidence of financial markets after four years of economic policies that left 12-month inflation above 10% and the economy expected to contract more than 3.7% this year.

One of Levy’s main goals was to safeguard the country’s investment-grade credit rating. He ultimately failed as Congress declined to approve many of his proposed tax increases and spending cuts, and Fitch Ratings joined Standard & Poor’s in downgrading Brazil’s rating to junk status.

Even with those downgrades, Brazilian bonds are still a good investment, Barbosa said Tuesday. He said inflation is set to slow next year, though not as much as the government would like, and economic growth would recover more quickly than many expected.

Levy was stymied in Congress partly because of resistance from members of Rousseff’s populist Workers’ Party to his austerity measures. Another factor was the plunge in the president’s popularity over the course of the year as the economy struggled and a giant corruption scandal at state-controlled oil company Petrobras implicated many of her party’s members.

Many of Brazil’s biggest construction companies are charged with overbilling Petrobras, as the oil company is known, for projects, then distributing the extra money to the state-controlled company’s executives and politicians.

The company, also reeling from the plunge in the price of oil, has had to slash its investment spending and sell off assets as it struggles to deal with a giant debt load

Barbosa said he nevertheless doesn’t expect the government to have to step in and recapitalize the company, adding that Petrobras’ situation has improved since the start of the year and its management is “taking the decisions necessary to improve operations.”