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Summit News

Brazil to cut spending 14-20 billion reais

BRASILIA (Reuters) - Brazil’s government will announce a spending freeze of 14 billion reais to 20 billion reais ($8.1 billion to $11.6 billion) focused on congressional amendments, Planning Minister Paulo Bernardo said on Wednesday.

Brazil's Planning Minister Paulo Bernardo gives an interview during the Reuters Latin America Summit in Brasilia April 2, 2008. REUTERS/Jamil Bittar

“Any scenario we take will be a prudent one,” Bernardo said at the Reuters Latin America Investment Summit in Brasilia.

“We’re being very careful. The international scenario could somehow affect our economy and reduce our revenue,” he said.

Bernardo said he was not worried about a possible central bank interest rate hike, adding that the latest figures showed inflationary pressures easing. The government has a target of 4.5 percent for inflation in 2008 and 2009.

“We may see inflation converging toward the target,” he said.

The minister also downplayed the importance of possible investment grade status by credit rating agencies, which some investors expect as early as this year.

“What does investment grade mean today? With all respect, these credit rating agencies need a rating themselves,” Bernardo said, referring to investment grade assets having faltered during recent global market turmoil.

Congress had already cut 12 billion reais in spending from the 2008 budget in March. In December it voted down a key financial transaction tax worth 38 billion reais in revenues.

The government intends to focus cuts on discretionary spending that legislators attach to congressional amendments, said Bernardo, who is in charge of budget and economic planning.

The administration expects 5 percent economic growth this year and maintains a 3.8 percent primary budget surplus target, which excludes debt service payments, he said.

The cuts, to be confirmed by President Luiz Inacio Lula da Silva as early as this week, would spare infrastructure investment and social spending, Bernardo said.

($1 = 1.721 Brazilian reais)

(For summit blog: summitnotebook.reuters.com/)

Additional reporting by Isabel Versiani, Daniela Machado, Elzio Barreto and Mair Pena Neto; editing by Brian Moss/Jeffrey Benkoe

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