May 7, 2015 / 2:31 AM / 4 years ago

Brazil lower house passes key fiscal adjustment measure

BRASILIA (Reuters) - A measure that reduces the cost of social welfare benefits narrowly cleared the lower chamber of Brazil’s Congress on Wednesday night in a tense victory for President Dilma Rousseff’s efforts to cut a fiscal deficit and restore investor confidence.

Brazil's President Dilma Rousseff speaks during the inauguration ceremony of the National Agricultural Protection Plan at the Planalto Palace in Brasilia May 6, 2015. REUTERS/Ueslei Marcelino

Lawmakers voted 252-227 to pass the bill that toughens conditions for jobless Brazilians to gain access to welfare and unemployment insurance, legislation that has put Rousseff at odds with Brazil’s largest labor union and some members of her Workers’ Party.

The belt tightening comes at a critical moment for Rousseff, who has lost popularity as Latin America’s largest economy drifts into recession and a graft scandal engulfs state-run oil company Petrobras (PETR4.SA).

Workers’ Party whips convinced reluctant members ultimately to vote for the bill, one of several spending cuts proposed by Finance Minister Joaquim Levy to close a budget gap.

The bill now awaits approval by the Senate, where it could face hurdles.

Levy has sought to increase government revenues and cut expenditures to reach a fiscal savings goal of 1.2 percent of gross domestic product this year, up from a 0.63 percent deficit in 2014. Brazil risks losing its prized investment-grade credit rating if it fails to put its finances in order.

Another bill that would tighten access to pensions by cutting down on abuses could be put to vote in the days ahead.

Both measures have been watered down during negotiations between Levy and party leaders in Congress, such as lowering to 12 months from 18 the minimum requirement to hold a job before a worker can claim unemployment benefits.

The changes have knocked about 3.5 billion reais ($1.15 billion) off the government fiscal savings plan originally estimated to provide 18 billion reais in budget relief.

Levy said last week he expects Brazil’s economy to contract this year but he is confident an ongoing fiscal adjustment will lead to renewed growth in the future.

He said the risk of Brazil losing its investment-grade rating is down substantially, but the fiscal savings measures need approval by Congress to maintain that credit rating.

Reporting by Maria Carolina Marcello, Alonso Soto and Anthony Boadle; Editing by Ken Wills

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