SUNS  4299 Monday 12 October 1998


BRAZIL: CARDOSO URGES SAVINGS TO TACKLE DEARTH OF CAPITAL

Brasilia, Oct 8 (IPS/Mario Osava) -- Brazilian President Fernando Henrique Cardoso announced that the expected fiscal adjustment programme, designed to combat the scarcity of capital for financing development, would be ready by Oct. 20.

The three-year programme is to keep the public debt from growing faster than the Gross Domestic Product (GDP). The latest figures, from July, put the debt at 38.2 percent of GDP.

Cardoso called for efforts from society as a whole, and especially Congress, which he said must approve "fundamental" social security and tax reforms. "If we do this (the adjustment) with energy, we will pull out of the crisis even stronger," said the president, re-elected Sunday for a new four-year term which starts Jan. 1.

The greatest effort must come from "the inefficient and the privileged, not wage-earners," Cardoso stressed.

The president of the Chamber of Deputies, Michel Temer, reported after meeting with Cardoso that the government would propose tax hikes, which had previously been ruled out.

The provisional 0.2 percent tax on checks and any other bank withdrawals (CPMF) will be maintained, "not increased to 0.5 percent as rumoured," said Temer. Analysts say the CPMF, created two years ago as a provisional measure to finance public health, may be made permanent.

The National Confederation of Industry expressed its opposition to that tax - which extracts a contribution from the productive sector - and to any rise in taxes.
The government will also seek urgent approval of a draft law submitted early this decade by Cardoso, when he held a seat in the Senate. The bill would introduce a tax on large fortunes, which ran into heavy resistance from the start.

The fiscal effort announced by Cardoso should mean an additional $20 billion a year - the sum needed by Brazil in order to obtain emergency financing from the International Monetary Fund (IMF) and the Group of Seven (G-7) industrial powers.

Cardoso said that since the global markets crisis had led to a scarcity of foreign capital, Brazil's growth must be based on domestic savings. He also added that to keep employment and incomes
from falling, the government would create a body, perhaps at the ministerial level, to "coordinate the productive sector" - industry, services and agriculture.

Putting top priority on construction, tourism, small and medium-sized companies and agriculture - agribusiness as well as family farms - is the route to curbing unemployment, he said.

"Brazil has many possibilities" and has done a good job in applying resources obtained in the past in infrastructure and in "making the economy more competitive," said Cardoso. That is why it will be
able to grow, despite the adverse circumstances, he added.

To set an example, sectors of the government have already announced cutbacks in expenditure.

Deputy Finance Minister Pedro Parente reported that his ministry would close nearly half of its offices in Brazil's 26 states, which will cut spending by $190 million. Positions of trust in the
ministry are also being eliminated. And Administration Minister Claudia Costin said that from now on the central government would only replace one-sixth of the average 15,000 civil servants who
retire or resign from their jobs in the public administration annually. Rather than hiring 5,000 new employees - or one-third of those who leave - the government will take on only 2,500, which will result in savings of 43 million dollars a year.

The announcement of the international bailout package for Brazil is expected next week, after the conclusion of negotiations with the IMF or the G-7.