Brazil’s Congress Approves Lula’s Budget Before 2010 Elections

Brazil’s Congress approved the country’s 2010 budget that may allow President Luiz Inacio Lula da Silva to boost spending before October’s presidential elections.

The Senate and the lower house passed the budget in a joint ballot late yesterday, including debt servicing and investments by state-controlled companies.

The move will allow Lula to raise the minimum wage to 510 reais ($286.4) a month, up from an initial proposal of 505.80 reais. The wage is now 465 reais.

“Election year is a year to make friends, and it starts with the elaboration of the budget” Andre Cesar, partner at CAC Consultoria, a political risk consulting company, said in a telephone interview from Brasilia. “The minimum wage is very symbolic in the dispute for votes.”

Lula wants Dilma Rousseff, his chief of staff, to be his successor in the October election. Rousseff is trailing opposition member and governor of Sao Paulo Jose Serra in polls.

The increase in the minimum wage should be seen as further evidence that Lula’s administration “will take more risk on fiscal policy over the course of 2010 in order to bolster growth,” Eurasia Group’s political analysts Christopher Garman and Erasto Almeida wrote in a report yesterday. “The end result will not only place additional pressure on the central bank to raise rates, but increase the odds that the next administration to assume office in 2011 will have to do some belt tightening.”

Faster economic growth will boost tax collection next year, allowing the government to reduce its budget deficit to a historical low of 0.13 percent of gross domestic product, down from an estimated 2.39 percent this year, according to the budget report posted on the lower house Web site.

Latin America’s biggest economy will expand 5 percent in 2010, according to estimates in the budget. The government’s original proposal forecast growth of 4.5 percent.