Delays cast doubt on Brazil’s austerity plan

Brazil’s government has missed its self-imposed deadline to provide details on how it will cut 50 billion reais ($30 billion) from this year’s budget, casting further doubt on whether it will have the discipline to see the measures through and slow an outbreak of inflation.

Senior officials, including Planning Minister Miriam Belchior, announced the size of the cuts to much fanfare on Feb. 9 but provided few specifics on where the budget would be reduced. Belchior said a decree with details would be published no later than Feb. 18. For more see

Now, as ministries haggle publicly and behind the scenes to be spared the brunt of the tough austerity measures, the announcement has been delayed again to Monday or Tuesday of next week, a source in the presidency’s office told Reuters.

The government hopes the timing will allow the central bank to consider the information before it meets for its regular interest-rate setting meeting on March 1-2, the source said.

The cuts are designed to rebuild Brazil’s credibility with financial markets after a burst in election-year spending in 2010 caused the government to miss its main budget target.

The fiscal largess, plus Brazil’s booming economy and a rise in global food prices, resulted in inflation rising to a six-year high in 2010. Prices have continued to climb, with 12-month inflation of 6.08 percent through mid-February, near the upper end of the official target range of 4.5 percent, plus or minus 2 percentage points.

The delays, and a general lack of information, has contributed to a belief among many investors that President Dilma Rousseff’s government is facing too much political resistance to see the cuts through the end of the year. Public spending in Brazil is handled largely on an ad-hoc basis, with the official budget used mostly as a guideline.

“The problem is how to implement the cuts,” said Jose Francisco de Lima Goncalves, chief economist at Banco Fator in Sao Paulo. “The delay is disappointing, but I can live with it if they actually end up doing what they promised.”

Rousseff hopes the cuts will bring prices under control and allow the central bank to be restrained in its interest rate increases in coming months. Analysts generally expect the bank to raise rates by 50 basis points next week to 11.75 percent.

Reasons given for the delay in the austerity details vary.

The source in the presidency’s office said that, shortly after she took office on Jan. 1, Rousseff instructed ministers to have the cuts ready by Feb. 28. She brought the timing of the announcement forward as a positive signal to markets when inflation expectations began to deteriorate, the source said.

Another senior official said that Rousseff needed to wait to divulge details of the cuts until after Congress finished voting on another politically difficult austerity measure — a modest increase in the minimum wage that fell well short of labor unions’ expectations.

Brazil’s Senate is set to make final the minimum wage vote later on Wednesday.