BRASILIA: Brazil will show weak growth this year despite a series of stimulus packages applied by President Dilma Rousseff's government to revive the world's sixth-largest economy.
The slowdown has raised doubts about her government's commitment to the three-pronged strategy that has underscored more than a decade of solid performance: inflation targeting, a floating exchange rate and a healthy fiscal surplus.
Brazil will miss its most closely watched fiscal goal this year: a primary budget surplus target of 3.1 percent of gross domestic product. This could signal that the slow economy may be leading Rousseff's left-leaning government to relax its fiscal discipline to stimulate growth.
Even with improved output in the final months of the year, the economy is expected to grow no more than 1.5 percent in 2012, the lowest rate among major emerging nations.
Rousseff's biggest challenge is to restore Brazil's economy to the glory days of the past decade, when annual growth rates above 4 percent lifted millions of Brazilians out of poverty and made the South American country a star among emerging markets.
The economic slump has not hurt Rousseff's popularity, which continues to rise. Nor was she affected by a corruption trial involving congressional vote-buying by officials from the previous government of Workers' Party founder Luiz Inacio Lula da Silva.
The scandal tarnished Lula's image but it did not stop the party from winning the coveted mayorship of Sao Paulo in Oct. 28 local elections, giving it control of Brazil's biggest city.
An upcoming post-election Cabinet reshuffle will not affect Latin America's longest-serving finance minister, Guido Mantega. Rousseff is happy with Mantega and will keep him in the job for the foreseeable future, sources close to the president told Reuters.
FISCAL DISCIPLINE
Large and consistent budget surpluses helped Brazil gain the confidence of world markets over the last 15 years, lowering its debt and leaving behind a long history of sovereign de bt cr ises and capital flight.
But weak growth and a string of tax breaks to stimulate struggling industries turned this year's 139.8 billion reais ($68.9 billion) primary surplus target into a virtually impossible objective.
Brazil's primary budget surplus fell sharply in September from a year ago to 1.591 billion reais ($783 million) in September, the central bank said last week, well below analysts' median forecast of 4.2 billion reais.
The government will resort to an accounting gimmick to meet its target. Tulio Maciel, the central bank's head of economic research, said the primary budget surplus income minus expenditures, not including debt interest payments will be calculated with different rules that leave some investments out of the equation.
The accounting maneuver is not recognized by the International Monetary Fund. Yet it will prevent Rousseff from having to slash public spending to meet the goal, which might have threatened an incipient economic recovery.
Missing the target could unsettle financial markets and impair Rousseff's goal of maintaining low interest rates in coming months. Some economists and ratings agencies have argued that her government has some latitude to ease fiscal policy without any risks given Brazil's generally robust finances.
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