Brazil’s Finance Minister Fernando Haddad stepped up calls for lower interest rates one day after unveiling a plan to shore up public finances by imposing levies on oil exports and phasing out fuel tax breaks.
(Bloomberg) — Brazil’s Finance Minister Fernando Haddad stepped up calls for lower interest rates one day after unveiling a plan to shore up public finances by imposing levies on oil exports and phasing out fuel tax breaks.
The oil tax will raise an estimated 6.6 billion reais ($1.3 billion) in revenue and will remain in place for four months, until fuel tax breaks given by the previous administration are completely eliminated. The gradual removal of such exemptions is a victory for the finance chief, who’s been struggling to balance the budget and convince the central bank that President Luiz Inacio Lula da Silva’s spending plans are not an obstacle to easing monetary policy.
“Interest rates are Brazil’s main economic problem today,” Haddad said Wednesday during an interview with UOL website. “The central bank has already said in its minutes that an end to fuel tax breaks would help to lower rates.”
Haddad’s comments echoed remarks he made on Tuesday when announcing his strategy to balance the budget. The measures, he told journalists then, showed “the government is going to do its part” and is now waiting on the central bank to take action.
Lowering Brazil’s benchmark interest rate, currently at 13.75%, has become a priority for Lula, who wants to boost economic growth to deliver on campaign pledges. Haddad himself has been under pressure from more radical members of Lula’s Workers’ Party, who are against an increase in fuel prices that could hurt the president’s popularity.
Petrobras Plunges
Shares in Petroleo Brasileiro SA fell for a second consecutive session on signs that the state-controlled oil firm will have to reduce its margins to absorb at least part of the impact of higher fuel taxes at the pump. Prospects that the company will be more frugal when paying dividends also weighed on its preferred stock, which declined more than 3% around noon in Sao Paulo.
Haddad denied that the government is intervening in the way Petrobras, as the oil company is known, sets fuel prices. It is a sensitive topic for investors because the company has a history of subsidizing fuel to help contain inflation, which made it the world’s most indebted oil company during the previous decade.
Read More: Petrobras Sinks on Fears It Will Cut Dividends, Subsidize Fuel
Energy Minister Alexandre Silveira, who joined Haddad to announce the plan on Tuesday, said the oil firm needs to be more transparent about its pricing and investment policies. One of the things that need to be clearer, he said, is why Petrobras took so long to cut fuel prices when it could have done it weeks ago. Haddad and Silveira said they will create a government work group to discuss transparency in the company’s policies.
–With assistance from Daniel Carvalho.
(Recasts with additional comments from Brazil’s finance minister on Wednesday)
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