Brazil unveils $20bn recession lifeline

Samantha Pearson - Financial Times

©Dmitry Islentyev/Dreamstime

Brazil has announced R$83bn (US$20.4bn) in extra credit from the country’s state-run banks to help groups ranging from farmers to real estate companies survive the nation’s deepest recession in more than a century. 

Finance minister Nelson Barbosa announced seven separate measures late on Thursday to free up credit from different areas of the economy, adding that the package would come at no extra cost to the Treasury. 

“It is the duty of a government to make better use of the resources that already exist,” Mr Barbosa told reporters. 

Among the measures are plans to bring forward lines of rural credit and tap the country’s FGTS workers’ pension fund to encourage more investments in infrastructure and housing. 
The majority of the measures can come into effect immediately, Mr Barbosa said.
The package, which has been rumoured for weeks, has raised concerns among investors, who fear it is a sign the country is abandoning its recent austerity programme and returning to the loose fiscal policies of President Dilma Rousseff’s first term in office. 
Analysts fear Ms Rousseff may be tempted to heed growing calls from the far left of her party to abandon the country’s austerity drive in exchange for their support against the motion in Congress to impeach her over illegal accounting practices. The resignation of fiscal hawk Joaquim Levy as finance minister last month and his replacement with Mr Barbosa has only heightened concerns about a shift to more heterodox policies. 
Others said that Thursday’s package, which is equivalent to only about 1.4 per cent of Brazil’s gross domestic product, may help to ward off a looming credit crunch but will do little to stimulate activity in the economy. 
“It's doubtful that it will trigger the turnround in activity that the government hopes,” said Neil Shearing, economist at Capital Economics. “For a start, most of the measures are aimed at easing the strain on existing debtors — put differently, they are designed to stop things getting worse rather than actually stimulate additional activity.”  
Analysts surveyed by the central bank expect Brazil’s economy to contract 3 per cent this year after shrinking an estimated 3.7 per cent last year. The IMF is even more pessimistic — it said this month it expected Brazil’s economy to contract 3.5 per cent in 2016.