February 18, 2015 / 3:40 PM / 4 years ago

UPDATE 2-Brazil's Levy tells investors fiscal adjustment to correct 'slippage'

(Rewrites to add Brazil finance minister and analyst comments)

By Herbert Lash

NEW YORK, Feb 18 (Reuters) - Brazil is removing the last vestiges of tax cuts and government spending aimed at bolstering the economy as officials work to correct the fiscal slippage of the last few years, Finance Minister Joaquim Levy told investors on Wednesday.

Levy said that the government of President Dilma Rousseff will work to meet its primary budget surplus goal of 1.2 percent of gross domestic product in 2015.

“We are just taking these anti-cyclical measures away, and this will put us on better footing,” Levy said in his first public address to investors in the United States.

Levy said he was confident in the Brazilian economy, although he understood investors’ fears.

“I’m not pretending that you should not be worried about the fiscal situation,” Levy said. “I’m confident that we should get the house in order. We will get back to the path of growth.”

Levy, a fiscal conservative who took office in January, acknowledged a “slippage” in Brazil’s fiscal results in recent years, but said the government was going to correct them.

He said that monetary policy “sooner or later will become more restrictive” and that additional loans to the country’s development bank BNDES are no longer a policy instrument.

Under his boss, Rousseff, Brazil’s fiscal deficit has widened to one of the biggest in the world, raising the risk that the country could lose its investment-grade rating.

A series of tax breaks and expenditures cost the government 104 billion reais in revenue, or about 2 percent of GDP last year, Levy said.

Levy has already raised taxes and limited public expenditures to plug the overall budget deficit that doubled last year to 6.7 percent of GDP.

Still, Levy will have a hard time shoring up Brazil’s finances.

“This is going to be a difficult fiscal adjustment, but he thinks the fiscal adjustment can be done simply by rolling back the clock on some of the excesses,” said Paulo Vieira da Cunha, a former deputy governor at Brazil’s central bank who is now head of research at hedge fund Ice Canyon. Da Cunha attended Levy’s presentation in New York.

One of Levy’s first challenges will be to convince lawmakers to pass controversial legislation to cut unemployment and pension benefits.

Lawmakers, even those in Rousseff’s Workers Party, are threatening to water down the legislation, which could save the government 18 billion reais ($6.36 billion). ($1 = 2.8289 Brazilian reais) (Writing by Alonso Soto; Editing by Grant McCool)

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