Brazil Needs Fiscal Reform

Brazilian economic officials reinforced calls for fiscal discipline to rekindle the country’s troubled economy, as the election of Donald Trump as US president added uncertainty to emerging markets.

Speaking at separate events, Brazil’s central bank president, Ilan Goldfajn, and Finance Minister Henrique Meirelles said that plugging a widening budget hole is key to restoring confidence, taming inflation and getting Latin America’s largest economy out of its worst recession on record, Yahoo reported.

“Increasing inflation to finance public spending is no longer an option,” Goldfajn told business leaders gathered in Rio de Janeiro. “Laws of fiscal adjustments are necessary,” he said.

Brazil’s Congress is considering public-spending limits for at least the next 10 years. A final vote in the Senate is expected next month. Other potentially controversial measures, including changes to Brazil’s generous retirement system, are expected for next year.

The measure represents a U-turn for a government that is used to expanding its costs faster than inflation for more than a decade and is facing headwinds among voters. The administration of President Michel Temer, who took over in August after former president Dilma Rousseff was ousted for alleged budget crimes, is trying to appease austerity critics by arguing it is the only way to resume growth.

“Fixing public-accounts deterioration is a prerequisite for the economy to grow again,” Meirelles said.

Brazil’s economy is forecast to contract 3.4% this year, according to a central-bank survey of economists released on Monday.

The central bank last month cut its benchmark Selic rate to 14% from 14.25%, the first rate cut in four years, as prices weakened and the two-year recession showed no signs of relief.

Consumer prices rose at a 7.9% annual pace in October, well above the official 4.5% target.