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Permanence of Temer in the presidency opens the way for seven years of budget deficits


Admired Temer moved away from the fiscal targets by having yielded to the pressure of branches of the Congress, eager for advantages and more money for his base, in exchange for votes to remain in the presidency.

Wider budget targets delay the prospect of a drop in the federal deficit after legislators refused to raise taxes in the recession-hit economy

On Tuesday, Brazil’s government loosened its budget targets for all years to the end of 2020, delaying the prospect of a drop in the federal deficit after legislators repeatedly refused to raise taxes in the recession-hit economy.

Cost-cutting measures were announced along with the new targets, in a bid to demonstrate President Michel Temer’s commitment to fiscal discipline, even after his economic team cut forecasts for economic growth for 2018.

The revision, announced weeks earlier than expected, underscored the uphill battle for Temer to gather support for austerity measures as the corruption scandal simmers and the 2018 general elections approaches.

Market reaction was muted as investors did not expect a surge in government spending despite the new targets. Rating’s agency S&P Global Ratings spared Brazil from a downgrade, saying after the announcement that it would maintain the country’s debt rating at BB with a negative outlook.

Brazil’s government set a new primary deficit target for 2017 and 2018 to 159-billion Reais ($49.7bn), up from 139-billion Reais in 2017 and 129-billion Reais for 2018.

The country will target a deficit of 139-billion Reais for 2019, up from 65-billion Reais previously. For 2020, it will aim for a 65-billion Reais deficit compared with a 10-billion Reais surplus previously — raising prospects of seven years of consecutive budget deficits, started back in 2014.

Brazil lost its investment-grade credit rating in 2015 after missing the goals for years. Temer, who replaced impeached president Dilma Rousseff in 2016, pledged to set realistic targets and meet them to regain credibility with investors.

According to specialists, the reaction by the rating agencies in view of the new targets, more distant than the original and much higher, may be negative.

Despite strong opposition to tax increases, Meirelles said the government would still seek to roll back payroll tax breaks and would raise taxes on some investment funds.

The government did not announce expected infrastructure concessions. It forecast 2% growth in 2018, down from a previous estimate of 2.5%.