[BRASILIA] Brazil's incoming finance minister Joaquim Levy vowed to cut spending and clean up the country's finances on Thursday, aiming to rebuild trust with investors after years of weak growth and erratic economic policies.
In his first public comments after President Dilma Rousseff announced his appointment, Levy laid out more realistic fiscal targets and promised more balanced economic growth in Rousseff's second term following her re-election victory last month. "We are not in a moment of crisis, so it is important to lay the basis for the next few years," Levy told reporters, transmitting confidence and fluency with a federal budget he shaped at the Treasury a decade a decade ago. "We are not in a hurry to announce measures. We are looking at reducing spending. There will be no package of measures, there will be no big surprises." The benchmark Bovespa stock index reversed losses as Levy began his remarks, but swung back into negative territory as he explained there were no immediate measures forthcoming.
Levy helped Brazil win an investment-grade credit rating when he was the head of the Treasury between 2003 and 2006, at the start of a decade-long boom that turned Brazil into an emerging-market powerhouse.
Since Rousseff became president in 2011, however, her leftist government has used accounting tricks and transfers from a sovereign wealth fund to meet fiscal targets, eroding its credibility with investors and credit rating agencies.
Levy now returns to the government with the task of restoring fiscal discipline and reigniting the economy. "Hitting our targets is fundamental to increase confidence in the Brazilian economy and lay the foundation for recovering economic growth," Levy told reporters.
Levy has a reputation for fiscal discipline and was an executive at Banco Bradesco before being appointed finance minister. He is expected to roll back costly stimulus measures but he could face resistance from within a left-wing governing coalition sworn to protect social spending.
Levy said he would take steps to boost private savings, increase productivity and bring balance to the economy, which has suffered three years of mediocre growth and high inflation, and slipped into recession earlier this year.
He plans to work with the private sector to expand investment and increase the supply of goods produced in Brazil, a change of focus from the credit-and-consumption policies of the past decade that economists say have reached exhaustion.
His success will depend largely on how much freedom Rousseff gives him to dictate policy in her second term.
When asked about how much autonomy he would have, Levy said the incoming economic team enjoys Rousseff's full confidence.
In his clearest break with outgoing Finance Minister Guido Mantega, Levy promised a more modest but more transparent public savings target next year.
The government will work with a primary surplus target of 1.2 per cent of gross domestic product (GDP) in 2015, down from a previously announced range of 2 per cent to 2.5 per cent, Levy said.
In 2016 and 2017 the primary surplus target - government revenue minus spending before debt payments - should return to at least 2 per cent of GDP, he said.
The government also announced the appointment of Nelson Barbosa, a former deputy finance minister, as Rousseff's new planning minister, while central bank chief Alexandre Tombini is staying in the post. "We don't have any details of what they are planning yet,"said Newton Rosa, chief economist at SulAmerica Investimentos in Sao Paulo. "The market is giving Levy the benefit of the doubt at first ... When they first detail the measures they are going to adopt, they must show consistency and realism."