* Brazil government to freeze an extra $4.4 bln in budget
* Finance minister vows to meet fiscal target this year
* Markets sees spending freeze as insufficient
By Alonso Soto
BRASILIA, July 22 Brazil announced on Monday it
will freeze an additional 10 billion reais ($4.4 billion) in
budgeted spending, in an effort that is unlikely to dispel
investors' mistrust in the government's commitment to fiscal
The new freeze, which was originally expected to reach up to
20 billion reais, is aimed at helping the central bank battle
inflation, which hit a 20-month high in June. Brazil's planning
ministry on Monday raised its projection for 2013 inflation to
5.7 percent from 5.2 percent previously -- closer to market
The government had unveiled a budget freeze of 28 billion
reais in May, bringing the total amount for this year to 38
billion reais, below last year's freeze of 55 billion reais.
The widely expected freeze did not convince many analysts
that President Dilma Rousseff's government is committed to rein
in spending to effectively battle above-target inflation.
"Saying that you will freeze 10 billion reais in spending is
not even worth the announcement. It's too timid," said Alberto
Ramos, head of Latin America economic research for Goldman
Sachs. "The government is trying to instill more credibility on
its fiscal stance, but it continues to be insufficient."
The government needs a freeze of about 25 billion reais to
meet an already reduced primary budget target of 2.3 percent of
its gross domestic products this year, consultancy Rosenberg &
Associados said in a note to clients.
After two years of aggressive spending Rousseff is trying to
convince investors her administration will stick to the tough
fiscal rules that helped stabilize Latin America's largest
economy after decades of crises.
The leftist economist faces growing spending pressures after
a wave of nationwide demonstrations to demand investments in
health, education and other public services rattled the country
Rousseff, who is widely expected to run for re-election next
year, has seen her approval rating plummet since the protests,
recent polls showed..
"I'm confident we will meet our (fiscal) targets this year,"
Finance Minister Guido Mantega told reporters, reiterating the
government aims for a primary surplus of 2.3 percent of GDP in
2013. "Investors' confidence will be recovering soon."
CLEAR FISCAL POLICY
Originally, the government had set the goal at 3.1 percent
of GDP, later cutting the target after revenue fell due to a
flurry of tax breaks aimed at sparking economic growth. The
primary surplus represents the public sector's excess revenue
over expenditures before debt payments.
The new budget freeze includes spending on travel, rent,
electricity and the hiring of new public servants.
In rare comments on the country's fiscal strategy, central
bank chief Alexandre Tombini told a local newspaper on Sunday
the government needs to be clear in its next fiscal policy steps
to bolster investors' confidence in an economy showing new signs
The administration has relaxed tough fiscal rules in recent
years, using "creative accounting" methods to bolster savings
results that have been harshly criticized for lack of
transparency. The government has brought forward dividends of
state-owned companies and transferred cash from other funds to
bolster state coffers.
Higher public spending tends to fuel inflation and add to
the country's debt burden.
Although Brazil's debt levels are much lower than those of
some European countries, its expansionary stance forced the
central bank to lift interest rates from record lows and
prompted warnings from debt rating agencies.
In June, Standard and Poor's cut Brazil's rating outlook to
"negative" from "stable" due to weakening public finances.