By Tiago Pariz and Guillermo Parra-Bernal
SAO PAULO Dec 5 Brazil's government is
refinancing its debt despite a recent jump in borrowing costs,
Finance Minister Guido Mantega said on Thursday, in a stark
denial of reports that policymakers are at odds over fiscal
A surge in debt yields in recent months followed the central
bank's decision to raise the benchmark overnight Selic lending
rate to fight inflation, Mantega said at the sidelines of an
event in São Paulo. He dismissed the notion that higher
borrowing costs are the result of eroding confidence on Brazil's
On Thursday, Brazil's main newspapers ran top page reports
saying that some policymakers are unhappy with the way National
Treasury Secretary Arno Augustin, a key Mantega aide, is
conducting liability management. The reports, which cited
sources familiar with the matter, said investors are demanding
higher returns to refinance maturing debt, partly due to a
deteriorating confidence on Brazil's public finances.
"All I can say to you is that there is no crisis at the core
of the National Treasury," Mantega said. "Secretary Augustin is
doing a lovely job. We are going to meet the goals we set forth
in our fundraising plan."
Mantega said "it's foolishness" to blame Augustin for the
higher yields when the Selic is going up and global liquidity is
tighter with speculation over tougher U.S. monetary policy. The
treasury, a ministry unit that handles the budget and government
debt, declined to comment on the reports published by newspapers
O Estado de S. Paulo and Folha de S. Paulo.
Investors are worried about President Dilma Rousseff's
spending practices. She has used spending increases and tax
breaks to revive economic growth but the strategy has fanned
inflation - raising questions about the sustainability of the
nation's $1.3 trillion debt.
The rapid erosion of the government's finances this year has
alarmed the market, raising fears of a sovereign rating
downgrade next year. Fiscal largesse is making it tough for
Brazil to meet its already-reduced overall primary budget
surplus target of 2.3 percent of the gross domestic product.
Yields on the fixed-rate note due in April 2015
surged to 11.13 percent on Thursday from about
7 percent at the start of the year. In contrast, the central
bank lifted the Selic six times this year to 10 percent from
7.25 percent at the start of the year.
For inflation-linked bonds, especially for securities with
the longer maturities, the surge in yields has been even greater
- reflecting worries that the central bank will be unable to
head off inflation.
The economy is not expanding "at the pace we would like, but
it is certainly growing," he said, adding that investment will
be the main engine for growth in 2014.
The exchange rate is going to be "more favorable" next year
than it was in 2013, Mantega said, without elaborating. He
dismissed the view that the central bank's renewal of a program
to stem fluctuations in the Brazilian real could lead to
a significant strengthening of the currency.
He does not expect the U.S. Federal Reserve's unwinding of
years of monetary stimulus to trigger enormous global market
turmoil. Markets anticipated the Fed's moves, and much of the
Fed's potential policy tightening is already factored in,
The government is likely to partially phase out tax breaks
on vehicles when it revises the tax policy for the sector in
January, Mantega said.
The move will be discussed with automakers, Mantega said.
Executives at Anfavea, the country's automakers association,
said on Thursday they expect the breaks to be removed and the
cost of borrowing for subsidized financing to be raised as the
government withdraws stimulus for the industry.