MercoPress. South Atlantic News Agency

Fiscal reforms crucial for Brazil's economy recovery, says the Central bank

“Uncertainties regarding reforms, notably those of a fiscal nature, this year would postpone investment decisions,” central bank vice-president Thiago Berriel said

The Brazilian economy’s ability to emerge from its current funk and return to “more robust” levels of growth largely hinges on the approval and implementation of fiscal reforms, the central bank’s deputy governor said in London.

In a presentation to the OMFIF think tank in London, Tiago Berriel also said inflation is under control and that the central bank’s sturdy policy framework and financial buffers will protect the Brazilian economy from shocks and setbacks.

“Uncertainties regarding reforms, notably those of a fiscal nature, this year would postpone investment decisions,” Berriel said, according to his presentation posted on the central bank’s website.

“An acceleration in the pace of economic recovery to more robust levels will depend on an environment of reduced uncertainties regarding the approval and implementation of reforms,” he said.

Brazil’s economy shrank by 0.2% in the first quarter, raising the prospect of a slide back into recession. Second quarter indicators and surveys released so far suggest there has been little improvement, if any.

The government is trying to get its ambitious pension reform bill through Congress. But the proposal to save the public purse 1.237 trillion reais over the next decade is likely to be diluted and approval is taking longer than the government had hoped.

Berriel insisted that a “gradual recovery will resume,” adding that a flexible exchange rate, healthy balance of payments surplus and almost US$ 400 billion of international reserves will protect Brazil from what is an increasingly uncertain international backdrop for emerging markets.