Brazil's Temer said to eye privatisations to plug budget gap

[BRASILIA] Brazil's Acting President Michel Temer is studying the sale of state assets to shore up public accounts, as well as an audit of the country's largest savings bank, said a government official with direct knowledge of the matter.

A government task force will consider selling stakes in companies such as power utility Furnas Centrais Eletricas SA and BR Distribuidora, a unit of Petroleo Brasileiro SA, the oil producer known as Petrobras, said the official, who asked not to be named because the plans haven't been made public. The intention is to help plug a near-record budget deficit and improve the efficiency of state-owned enterprises.

Petrobras's preferred shares rallied as much as 1.6 per cent on the report, after posting losses during most of the morning.

The plans are the clearest sign yet of a policy shift since the Senate's suspension last week of President Dilma Rousseff, who had increased the role of the government and state companies in the economy.

Mr Temer, who appointed what Goldman Sachs Group, Inc called a "dream team" of economic advisers, is facing the delicate task of adopting unpopular austerity measures and pulling the country out of its worst recession in over a century without prompting a backlash from crisis-wary Brazilians.

Mr Temer's team is aware it must tread carefully in selling assets tied to Petrobras, a Brazilian institution that is seen by many as a source of national pride, the person said.

The possibility of selling a stake in BR Distribuidora had been floated before, as Petrobras last year began focusing on its core business of oil production.

Mr Temer is trying to find ways to fill public coffers in a hurry, after a recession eroded tax revenue and more than tripled the budget deficit. His finance minister, Henrique Meirelles, said in an interview televised Wednesday night that the economic team is looking at other measures to shore up the budget, including a reform of the pension system that could include a minimum retirement age. He said the economic recovery in coming quarters will depend in large part on the speed at which Congress approves the proposals.

Mr Temer's cabinet also is prioritising discussions to renegotiate state debt before the Supreme Court reaches a decision on how local governments should pay interest to the federal administration.

A court ruling to allow states to pay simple rather than compound interest rates would strain the budget and risk undermining Brazil's financial system by setting a precedent that could be applied to other types of loans, including credit cards and auto loans, the unnamed official said.

The financial situation of Caixa Economica Federal, the second-largest lender in Brazil, may require an internal audit to determine the extent of its financial troubles, the official said.

Caixa, which has a 67 per cent share of Brazil's mortgage lending market, saw delinquency rates rise to 3.51 per cent in the first quarter from 2.85 per cent a year earlier. The bank's press office declined to comment about the possibility of an audit.

BLOOMBERG