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UPDATE 1-Brazil's Levy does not rule out increasing tax on domestic fuel
December 17, 2014 / 11:47 AM / 3 years ago

UPDATE 1-Brazil's Levy does not rule out increasing tax on domestic fuel

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RIO DE JANEIRO, Dec 17 (Reuters) - Brazil’s incoming finance minister Joaquim Levy on Wednesday vowed to swiftly adjust fiscal policies by cutting government expenses and possibly raising taxes, including a so-called CIDE tax on domestic fuel sales.

Levy said that a “firm and balanced” fiscal adjustment should have a quick positive impact on economic growth.

“Implementing the necessary measures without taking too long helps keep jobs,” he said in an interview with Globo TV.

Brazil’s economy has stagnated this year as domestic and external problems pile up.

Locally, concern about the country’s fiscal policies and a growing corruption scandal at state-run oil company Petrobras have been eroding investor and business confidence.

Fears of higher U.S. interest rates, as well as lower commodities and oil prices, have added pressure to emerging market economies in general, causing the Russian currency to tumble this week.

Levy said Brazil needs to increase its domestic savings rate to “invest more and also to be prepared for a world that is increasingly turbulent, as has become clear in the past few days.”

He acknowledged that Brazil’s inflation should pick up in coming months due to a number of rises in government-managed prices, including those of electric power.

Higher power generation costs caused by intensive use of thermoelectric plants should be transferred to consumers rather than subsidized by the government, he argued.

Adding to inflation in Brazil is a steep depreciation of the country’s currency, the real, which has lost nearly 15 percent of its value so far this year.

Levy said the government needs to “watch” the behavior of the currency, but considered normal that investors seek dollars in moments of heightened global aversion to risk. “There is also a global trend of a stronger dollar as the U.S. economy grows faster,” he said.

He added “it’s too early to say” whether the Treasury will have to provide financial support to state-run oil company Petroleo Brasileiro SA, or Petrobras, which risks losing access to capital markets as a result of a widening corruption scandal involving its projects. (Reporting by Walter Brandimarte Editing by W Simon)

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