from the FINANCIAL TIMES
March 31, 2004

Brazil Unveils Investment Plan to Defuse Unrest
By RAYMOND COLITT in São Paulo


Brazil's left-leaning government on Wednesday announced a R$15bn ($5.1bn, £2.8bn, $4.2bn) investment and financing plan for industrial development amid growing demands for more aggressive social and economic policies. The ambitious plan includes tax breaks to modernise machinery, new legislation and investment for research and development, international marketing campaigns, one-stop information shops for investors and cutting red tape for business - particularly in customs. The plan is the latest measure in recent days that the government hopes will help defuse growing dissatisfaction among labour, industry and grassroots organisations after a year of economic austerity. The wave of protests began after the government was weakened in February by a graft scandal involving a presidential aide.

The government's approval rating has fallen to 54 per cent, down from 66 per cent in December and a high of 75 per cent a year ago, according to a survey released on Friday by Ibope, the polling organisation. Faced with the threat of widespread strikes by civil servants, the government this week announced salary increases of as much as 29 per cent, above expectations and last year's inflation of 9.3 per cent. It also announced an increase of R$1.7bn to settle impoverished peasants, after the landless movement stepped up land occupations and warned on Saturday that it would "create hell" if its demands were not met.

On Tuesday Antonio Palocci, the finance minister, sought to reassure financial markets that the government would not abandon the fundamentals of its economic orthodoxy. "Economic policy will not, cannot and should not change. We need definitively to make clear we are a responsible country that won't change course at the first sign of unrest," Mr Palocci told a congressional committee. He said the government would maintain its primary budget surplus target of 4.25 per cent of gross domestic product this year and added that he hoped to extend it for the next two years. Mr Palocci rejected the idea put forward by Aloizio Mercadante, a senior senator from President Luiz Inácio Lula da Silva's governing Workers' party, that the government should ease its inflation targets to reduce interest rates more quickly. Industry leaders welcomed Wednesday's proposals but said they hoped their implementation would be faster than their 15-month design.

Copyright 2004, The Financial Times Company



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