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Further Budget Cuts
Guido Mantega, Finance Minister
Late last week the Ministers of Planning and Finance announced that due to avoid the overheating of the economy, the government was cutting the budget by a further R$ 10 billion. The budget had been cut in March by R$ 21.8 billion. The major concerns of the government were the revision upward by most economists of the economic growth rate for 2010, above 7%. Mantega indicted that the economy in the first quarter was growing at a rate of between 8 and 10% per annum, a rate which is above the actual productive capacity of the Brazilian economy. The action taken by the government was an attempt to keep the rate about or below 7%. The readjustment of the minimum salary by 9.7% was expected to have a strong effect on consumption capacity and, on inflation.
The government has the choice of raising interest rates, or cutting its own expenses, and in the last few weeks has done both. At the April meeting of Banco Central`s committee on monetary policy (“Copom”), the Selic rate was raised from 8.75% to 9.5%. However, the news of the cuts was greeted with cynicism by some observers who noted the Treasury`s recent, confident presentation that the Government’s first quarter primary deficit could be reverted easily, and took these cuts as being evidence that the balancing of the government budget would not be so easy.
The cuts are made in future expenses, not yet detailed, and therefore the question of when these cuts will come into effect to reduce consumption is being discussed. For instance, it must not be forgotten that we are in a Presidential election year where the interest of the government is probably not in reducing consumer activity inordinately. Thus, doubts as to whether the cuts will affect economic growth this year have also caused economists to wonder whether interest rates would be further increased to combat inflation.
Other commentaries have suggested that a cut of, so far R$ 31.8 billion in government spending is too little too late to affect government expenses this year. The amount of R$ 40 billion was being suggested as the necessary amount of cuts, but that was tow months ago.
The position of the Brazil’s recovery from the World economic crisis has left the country with a number of weaknesses, notwithstanding an exemplary performance. Those weaknesses include burgeoning inflation, difficulty in balancing government accounts within projected goals, and a weak export sector.
Cameron & Clegg Form a Coalition Government
Cameron & Clegg
Of course, as former British Prime Minister Harold Wilson famously used to say, a week in politics is a long time, and at Downing Street yesterday two of the losers had become winners, as they presented themselves as the new Prime Minister and Deputy Prime Minister. The Downing Street lawn, unlikely afternoon sun, youthful good looks, adolescent good humour and enthusiasm had taken over, and the only casualty was reality. Refreshing and vibrant, it was, with Prime Minister Cameron talking of Big Societies, New Politics and Seismic Shifts, and hailing compromise as a quality of the strong. He undoubtedly set the tone of the day, which was echoed by his new Deputy PM, Nick Clegg. Cameron is ushering in an era where National Interest supersedes Party Interest, which probably means that the Conservative manifestos, with political reform concessions to the Liberal Democrats, i.e. a referendum on the Alternate Vote System as well as, God help us, fixed term Parliaments, is now the National Interest.
Clegg said that this was a coalition that would last, and if they introduce legislation that will prevent a new election before 2015, then clearly something will have to last. However, many voters, including me, want a way out of this situation if the coalition of Conservatives and Progressives does not manage to survive, and history (but not necessarily British history) is replete with failed coalitions. So, please, let’s have fixed term elections if we move to a Presidential system, otherwise let’s wait until we have a new electoral system and think about this in that context.
The exuberance of the occasion was lost on neither the media nor the country, and often hard-headed and rational people were caught up in the contrast with the embattled, dour but dedicated Scotsman who had recently left the job, and were more than willing to give the boys a chance.
Day 2. A misunderstanding has emerged between the Liberal Democrat’s economic and financial expert, and member of the cabinet, Vince Cable, and the new Conservative Chancellor of the Exchequer, George Osborne. It would appear that Mr. Cable thought he would have responsibility for reform of the UK’s financial sector; which could include the breaking-up of present banks into Investment and Commercial banks, but apparently not. The Treasury will be responsible for the issue. Good job it was nothing important.
Brasilia 3
An independent observer of Brazilian news might be excused for coming to the conclusion that politicians abuse their power, largely in terms of financial corruption, with impunity. Cases of abuse of the public purse seem to be announced, analyzed and then be forgotten as judicial processes take an almost infinite amounts of time.
However, the case of the current Governor of the Federal District, José Roberto Arruda is perhaps one of the first cases that may give perpetrators of corruption pause for thought. The Governor has been in preventive detention i.e. prison, for the last three weeks due to his purported attempt to bribe a journalist to change his testimony. The charges against him stem from the purported payment of bribes to legislators to vote for the Governor’s legislative agenda.
Yesterday, the Supreme Federal Tribunal, under the guidance of Minister Marco Aurélio Mello voted 9 to 1 (1 minister was absent) to reject Arruda’s petition of habeas corpus, which would have released him from prison without having to resign as Governor. Thus, the Legislature of the Federal District is authorized to move ahead with its process of impeachment.
STF Minister Marco Aurelio Mello
Arruda’s probable course of action will now be to resign as Governor and thus end the process of impeachment, and request that the Superior Tribunal of Justice of the Federal District will revoke his detainment in prison but require detainment in his home, based upon poor health reasons.
According to Deborah Duprat, the Vice Attorney General of Brazil, the process against Arruda appears to have given courage to at least three members and former members of the Federal Police to come forward and provide testimony against Arruda in other cases where the Governor is purported to have interfered with investigations.
Brasilia Update
Paulo Octavio Alves Periera resigned yesterday as the interim Governor of the Federal District after little more than a week in the job. Paulo Octavio had made certain mistakes during that week, including using his meeting with President Lula to suggest that Lula encouraged him in his efforts to continue in office. This was in the hope that when the Supreme Tribunal of Justice (STF) opines tomorrow (February 25th) on the issue of the Federal Government assuming the government of Brasilia, his support by the Federal Government would be taken into account. However, Paulo Octavio’s statement was met by an immediate and firm statement from the Presidential Palace that President Lula had not made any statement of support concerning Paulo Octavio`s plans to resign or not. This in turn led to a humiliating statement by Paulo Octavio agreeing with Planalto.
Paulo Octavio Alves Pereira
His resignation letter, as published in today’s press failed to mention the five actions of impeachment against him, nor the additional two investigations in which he has been implicated.
The government of the Federal District has thus passed into the hands of Wilson Lima of the Republican Party, the actual President of the legislature. However, it is more than likely that the STF, in their opinion tomorrow will recognize that the level of corruption in the Federal District has reached a point where the government has no capacity to function normally, and thus Brasilia will be administered by the Federal Government.
The other issue facing the STF will be a judgment concerning Habeas Corpus for Jose Roberto Arruda, the former Governor of Brasilia who was imprisoned after having been implicated in scheme to bribe a witness into giving false testimony. The judgement by the Superior Tribunal of Justice (STJ) of the Federal District voted 12 to 2 to imprison Arruda which was confirmed after an initial appeal to the STF, where Minister Marco Aurelio Mello agreed with the STJ. These decisions could be overturned tomorrow by the STF meeting in a plenary session.
There are no lack of interesting aspects of this case, but it is worth noting that this is the first case of a sitting Governor being imprisoned.
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