São Paulo – The package announced by the Brazilian government this Wednesday (27th) to boost the economy includes a cut in the Long-Term Interest Rate (LTIR) from 6% to 5.5% a year. The initiative is expected to have a direct impact on the economy and work as an incentive to investment, because the rate is used as a benchmark for loans from the Brazilian Development Bank (BNDES).
The tax break was mandated by president Dilma Rousseff and has taken place in spite of opposition from the Central Bank and the Ministry of Finance. Nonetheless, the Finance minister Guido Mantega addressed the measure in a press statement. “It means another cut in financial costs to investors who use credit from the BNDES,” he said. The lowered tax will apply to both new and old loans.
The package also provides for 8.4 billion reals worth of machinery and equipment to be purchased by the Brazilian government, exceeding the 6.6 billion real forecast included in the 2012 budget. The purchases are part of the equipment section of the Growth Acceleration Programme (PAC, in the Portuguese acronym). As a result, global PAC spending goes up to 51 billion reals this year, according to the Ministry.
The machinery purchased will go to sectors such as healthcare, defence, urban security and mobility, according to the Ministry of Finance. “Equipment purchases are important to address environment issues such as drought, increase production capacity, and boost investment. Furthermore, it strengthens partnerships with states and municipalities to implement public policies,” said the minister.
Purchases will include 8,000 trucks, 3,000 agricultural equipment units and vehicles, 3,500 bulldozers and land levellers, 50 well drills, 2,100 ambulances, 160 urban train wagons, 500 motorcycles, 40 armoured vehicles for the Ministry of Defence, 30 missile launcher vehicles, 8,700 school buses, and roughly 450 million reals worth of school furniture, among other products for public services.
The healthcare purchases, which will include tomographs and dialysis machines, preference will be given to domestic suppliers. The government promises to buy over 80 domestically produced items at prices 8% to 25% higher than those of the international competition. BNDES financing will also be offered for purchases in healthcare, on which case the products are required to have 60% of domestically produced parts.
This is expected to be the highest PAC investment over the course of one year, according to the Ministry of Finance. The measures were taken in an attempt to fight the international economic crisis and prevent it from stemming national growth. Financial analyst projections disclosed this week by the Central bank indicate that the economy may grow by only 2.18% in 2012 as a result of the crisis. Should it prove true, it will be a much lower rate than last year’s 2.7%.
*Translated by Gabriel Pomerancblum
