* Brazil posts record primary deficit of 9 billion reais in
* Government says to lower some unemployment benefit costs
* Move unlikely to allow government to reach fiscal target
* Net debt/GDP ratio rises to 35.0 pct
By Luciana Otoni and Nestor Rabello
BRASILIA, Oct 31 The Brazilian government
announced on Thursday plans to cut some unemployment benefit
costs, a move analysts said was not enough to calm investors
worried that a rapid deterioration of the country's finances
could lead to a credit rating downgrade.
The country posted a primary budget deficit of 9.048 billion
reais ($4.1 billion) in September, its biggest in
nearly five years, central bank data showed earlier on Thursday.
Analysts had expected a small surplus of 100 million reais
for the month.
Hours after the data was released, Finance Minister Guido
Mantega called a press briefing to announce the government was
analyzing cuts to expenditures related to unemployment insurance
and mandatory wage bonuses.
Mantega said such costs could amount to 47 billion reais
this year, but he did not specify how big the cuts might be.
"The government is always working to meet our fiscal goals
and reduce public expenditures," he said.
Still, many analysts say that even a steep reduction in
jobless benefits will do little to improve Brazil's finances.
"It is positive that they want to cut costs, but this is a
very small part of the bigger problem," said Flavio Serrano,
senior economist with Espirito Santo Investment Bank in Sao
Paulo. "The problem has more to do with expenditures related to
public wages and services."
President Dilma Rousseff is under growing pressure to rein
in spending after giving a slew of tax cuts and cheap loans to
businesses in an attempt to bolster Latin America's largest
Although Brazil's finances are healthier by some measures
than those of the United States and many European nations,
investors fear the South American country has loosened the
fiscal austerity that helped it end decades of economic crises.
Ratings agencies and private-sector economists have bashed
Brazil's budget policy in recent years, saying it has relied on
last-minute accounting gimmicks and extraordinary revenues to
attain its goals, instead of curbing spending.
Moody's Investors Service dropped a positive outlook on the
country's ratings earlier this month. Standard & Poor's, in
turn, placed a negative outlook on Brazil's "BBB" credit rating
in June, in a sign it could downgrade Latin America's largest
country to the lowest level among investment-grade economies.
The government may cut its primary surplus goal for the
year, which was already lowered to 2.3 percent of the gross
domestic product earlier this year from 3.1 percent, an official
close to the discussions told Reuters.
The government could reduce the goal by excluding billions
of reais in investment from the primary surplus calculations.
The primary budget balance, which represents the public
sector's excess revenue over expenditures before debt payments,
is a closely watched gauge of a country's ability to service
debt. The government fell short of its surplus target in 2012
and will very likely miss it again this year after it
implemented a slew of tax breaks to revive the economy.
It was the widest primary deficit since December 2008 and
the worst ever recorded for September.
"If we stay on this path without raising taxes or cutting
expenses, a credit rating downgrade will be inevitable," said
Felipe Salto, an economist with research firm Tendencias
Consultoria in Sao Paulo. He noted that signs of reduced lending
by state banks could help postpone that move, although he sees a
rating cut as increasingly likely by 2015.
The public sector's net debt rose in September to 35.0
percent of GDP versus 33.8 percent the previous month.
It also supported expectations that the central bank may
increase interest rates beyond 10 percent, among the world's
highest, as heavy government spending contributes to inflation
above the center of the official target.
The yield of Brazil's interest rate futures rose
across the board on Thursday, meaning traders are betting on
steeper rate increases ahead.
In the 12 months through September, the primary surplus was
equivalent to 1.58 percent of gross domestic product, down from
the 1.82 percent posted in August.