Brazil to Raise Investment Spending to Spark Growth

Bloomberg

Andre Soliani

Brazilian President Luiz Inacio Lula da Silva’s government will seek to increase planned spending on infrastructure projects by 28 percent to spark economic growth in response to the global financial crisis.

Government and private spending on roads, power dams and other projects, which are part of Lula’s so-called Accelerated Growth Program for 2007-2010, will be increased to 646 billion reais ($281 billion), from the 504 billion reais originally announced in January 2007.

Additional spending will help spur the economy, said Finance Minister Guido Mantega, who reiterated the government’s 4 percent growth target for 2009. Record job losses, factory cutbacks and the biggest drop in exports since 1991 signal that the expansion of Latin America’s biggest economy probably stalled in the fourth quarter of 2008.

“The growth program can help sustain investment levels, even if we experience an economic slowdown,” Dilma Rousseff, Lula’s Cabinet chief, said today in Brasilia. “We’re seeking to accelerate works and ensure the needed pace of investments to avoid the crisis.”

Latin America’s biggest economy may be in its first technical recession -- two consecutive quarterly contractions of gross domestic product -- since 2003, according to economists such as Tony Volpon, chief strategist at CM Capital brokerage in Sao Paulo.

Inventory Cuts

In separate announcement today, Budget Minister Paulo Bernardo said Brazil will create a fund with 500 million reais to insure bank loans to low-income families for housing.

Industrial output fell 14.5 percent in December, the most in at least 17 years, Brazil’s statistics agency said yesterday. The drop exceeded all 22 forecasts in a Bloomberg survey. After stripping out seasonal factors, output fell 12.4 percent in December from November, the agency said.

Mantega today said the drop reflected a decision by companies to reduce inventories.

Brazil lost a record 655,000 jobs in December as companies cut production to adjust to lower consumer demand and as prices for commodity exports tumbled. Brazilian pulp maker Grupo Orsa SA yesterday said it fired almost 10 percent of its workforce because of falling sales abroad.

Economists covering Brazil expect the country’s economy to expand 1.8 percent in 2009, according to the median forecast in a central bank survey published Feb. 2. That pace would be the slowest since 2003, when the economy grew 1.2 percent.

Lula won a second term in 2006 on a pledge to accelerate economic growth by lowering interest rates and freeing up funds to invest in roads, bridges and other infrastructure.

The real rose 1 percent to 2.2832 per U.S. dollar at 11:14 a.m. New York time, from 2.3052 yesterday.