Brazil govt to announce on Wednesday how it will fund new welfare program -senator

BRASILIA, Oct 5 (Reuters) - Brazil’s government will on Wednesday reveal how it plans to fund its new social welfare program ‘Renda Cidada,’ Senator Marcio Bittar said on Monday, adding that the proposal will respect the administration’s key fiscal ‘spending cap’ rule.

The new program, which replaces the current popular Bolsa Familia scheme at the start of next year, has caused huge political controversy and financial market volatility recently due to uncertainty over how it will be paid for.

Speaking to reporters after meeting with Economy Minister Paulo Guedes on Monday, Bittar did not give any further details. Guedes was at his side but did not speak to the press.

“I will not get into where and how Renda Cidada will be financed, except to say that it will be a collective decision led by the economic team, led by minister Paulo Guedes. And the solution, whatever it is, will be within the (spending) cap,” Bittar said.

Bittar is a key figure, as he is the coordinator of both the 2021 Annual Budget Bill in Congress and proposed constitutional amendment for the ‘Federative Pact’ reform bill to revamp the financing ties between federal and local governments.

Brazil’s currency fell sharply and long-term interest rates jumped last week after Bittar, flanked by Guedes, President Jair Bolsonaro and other ministers, said Renda Cidada would be funded by tapping money earmarked for future debt payments.

Markets slumped on the view that the government was using an accounting trick to fund the scheme and that the spending cap would be breached, fueling debt sustainability fears and potentially leading to higher interest rates.

Bittar acknowledged that the issue had stoked “turbulence”, but insisted this was a “normal” result of debate.

Brazil’s real and stocks were up around 2% on Monday, recovering some of last week’s losses. (Reporting by Ueslei Marcelino and Marcela Ayres Writing by Jamie McGeever; Editing by Andrea Ricci)