Brazil casts budget surplus cut as 'damage control'

Brazil's decision to cut its targeted primary budget surplus will not lead to "permanent fiscal deterioration" and should be seen as a government attempt at "damage control" amid economic slowdown, a Brazilian central bank director said on Thursday. Mario Mesquita, the central bank director of economic policy, told investors In New York that no country will be able to improve fiscal accounts this year amid the global recession.
"It's all a matter of damage control to the fiscal accounts and to the economy," Mesquita said during an event organised by the Brazilian-American Chamber of Commerce. The primary budget surplus measures how much a government's revenue exceeds expenditures before factoring in interest payments. As such, investors see it as a gauge of a country's ability to service its debt. Questioned by analysts about Brazil's commitment to fiscal discipline, Mesquita said it was important for investors to keep a medium-term perspective on Brazil's fiscal performance.
"What the government did - provided that the primary surplus moves back up in the medium-term and that we keep the debt-to-GDP ratio on a downward path - should be OK during an economic contraction, or a major economic slowdown," he said. Brazil on Wednesday cut its primary budget surplus target for this year to 2.5 percent from 3.8 percent of gross domestic product. It set a target of 3.3 percent of GDP for the next three years.