July 24, 2019 / 3:00 PM / a month ago

UPDATE 1-Brazil prepares 'emergency' 42-bln-reais stimulus from workers' fund

(Recasts lead with Bolsonaro comments, adds details and context)

By Lisandra Paraguassu

BRASILIA, July 24 (Reuters) - Every Brazilian will be able to withdraw up to 500 reais ($133) from his or her workers’ severance fund accounts, in what President Jair Bolsonaro said Wednesday will be an “emergency” 42-billion-reais stimulus injection into a sputtering economy.

Economists are forecasting a string of interest rate cuts this year aimed at lifting Latin America’s largest economy out of a prolonged funk since the punishing 2015-16 recession, but weak tax revenue leaves little room for major fiscal stimulus.

“It’s an emergency matter. Yes, it is an emergency, because our economy is not doing well, although it is already showing signs of recovery,” Bolsonaro said to reporters in Brasilia. “And I think we can help, by putting some money into people’s pockets.”

Employers in Brazil contribute to the so-called FGTS fund, which employees can draw from during certain circumstances such as a home purchase, loss of employment or serious health problems. Many workers have “active” accounts at their current jobs and “inactive” accounts linked to previous employers.

On Tuesday, Economy Minister Paulo Guedes said some 30 billion reais will be freed up from the FGTS fund this year and 12 billion reais next year.

Details of the measure are expected at an Economy Ministry press conference at 4 p.m. local time (1900 GMT) on Wednesday.

Confirming the FGTS withdrawal limits, Presidential Chief of Staff Onyx Lorenzoni said on Wednesday that workers will be able to make annual withdrawals in the future.

“This year,there will be a withdrawal limit of 500 reais per account. From next year, if you have enough money in the account, the percentage will be lower, and if you don’t have much left, the percentage will be higher,” Lorenzoni told Radio Gaucha.

Workers will be able to make withdrawals between August this year and March next year, Lorenzoni said.

Currently, if an employer fires a worker without just cause, they are liable to pay the individual up to 40% of the total contributions made by the company for that worker to date. Since 2001, employers must also pay a 10% levy to the government.

Bolsonaro has said that the FGTS fine was designed to prevent firms from firing workers, but argued it had instead made them unwilling to hire. He has called for a loosening of Brazil’s labor laws in order to boost job creation.

Lorenzoni said labor costs in Brazil are too high, something the government will look to address in its upcoming tax reform proposal, at the heart of its economic agenda for the second half of 2019.

Brazil’s economy is growing far more slowly than most analysts have forecast. The government, central bank, International Monetary Fund and analysts all predict it will expand by just 0.8% this year, even slower than its sluggish 1.1% growth in each of the prior two years.

$1 = 3.76 reais Reporting by Lisandra Paraguassu, Additional reporting by Ana Mano in Sao Paulo and Pedro Fonseca in Rio de Janeiro; Writing by Jamie McGeever; Editing by Brad Haynes and Bernadette Baum

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