Brazil to use cash from Caixa, fund to meet fiscal goal -source

Thu Jan 3, 2013 8:21pm EST

* Government plans to add 13.5 billion reais to finances

* 2012 primary surplus target at risk as revenues slide

By Luciana Otoni

BRASILIA, Jan 3 (Reuters) - Brazil plans to tap state lender Caixa Econômica Federal and its sovereign wealth fund to meet a closely-watched fiscal savings target in 2012, a senior government official told Reuters on Thursday.

The government will repurchase 13.5 billion reais ($6.63 billion) of public debt owned by the Caixa and the fiscal investment and stabilization fund, known for its Portuguese initials as FFIE, the official said on condition of anonymity.

The proceeds from the repurchases will be channeled back to the government in order to reach its 139.8 billion reais primary budget surplus goal - a gauge of the country's ability to service its debt.

The administration of President Dilma Rousseff has struggled over the past year to generate enough revenues to reach its surplus target, which is seen as one of the main policy pillars of Brazil's new-found economic stability.

A sharp slowdown in tax revenues coupled with tens of billions of reais in tax relief to bolster a near-stagnant economy have threatened the savings goal, which is equivalent to about 3.1 percent of the country's gross domestic product.

The government has already said it will use alternative accounting methods to reduce the fiscal target by 25.6 billion reais. However, even with that reduction the target is at risk after the government posted a primary deficit in November.

To reach the adjusted target the government will need to post a primary surplus of 31.5 billion reais in December.

The government has announced the repurchase of 8.8 billion reais in debt from the FFIE fund. The proceeds will be transferred to the sovereign wealth fund in order to be considered primary revenue, the source said.

In coming days, the source added that authorities also planned to announce the buyback of 4.7 billion reais in debt from Caixa, which will return those proceeds to the government as dividends.

Some analysts have warned that policymakers are leaving behind the fiscal discipline that allowed the government to drastically cut its debt burden and avoid the crises that plagued Brazil in the last century.

Some economists predict the South American nation would again miss its primary target in 2013 due to a surge in public spending and further tax breaks aimed at supporting the economy.

Waldemir Quadros, a public administration professor at PUC in Sao Paulo, said the accounting maneuvers used by the government to reach the target reflected the poor quality of the primary surplus.

"The government uses (measures) that are at limit of what is legal to do creative accounting," Quadros said.

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