* Finance minister unveils tax cuts worth near $5.5 bln
* State bank to provide more subsidized loans
* Measures to boost growth toward 4.5 pct growth target
* February industry shows signs of life, down from year ago
By Alonso Soto and Tiago Pariz
BRASILIA, April 3 (Reuters) – Brazil’s government announced
a new package of tax cuts, low-cost credits and other relief for
ailing industries on Tuesday, as Latin America’s biggest economy
struggles to regain momentum.
The measures came as fresh data showed signs of life in
Brazilian industry after a prolonged slump, but some analysts
cautioned that the latest policies would fail to tackle the root
causes which have made domestic manufacturing less competitive
abroad.
Finance Minister Guido Mantega said the government will cut
payroll taxes in efforts to spur hiring in sectors ranging from
textiles and plastics to the automotive industry. Together, the
tax cuts represent about 10 billion reais ($5.5 billion)
annually in foregone public revenue.
The government will also stimulate domestic industry through
government purchases and inject 45 billion reais (about $24.5
billion) into the coffers of a state development bank that
provides subsidized loans for Brazilian companies.
The moves are the second such stimulus package for ailing
Brazilian industries since the country’s previously booming
economy began to slow in mid-2011, hit by the worsening fears in
Europe and slower growth in China.
“Given the international outlook, we must continue to take
measures to stimulate public and private investment,” said
Finance Minister Guido Mantega, in a speech to business leaders
in Brasilia, Brazil’s capital.
Brazil’s real currency firmed after Mantega’s
comments, in which he said the recent retreat by the currency
had put the real back at a “reasonable” level. The real climbed
0.3 percent in Tuesday trade to 1.8250 to the dollar.
Brazil’s benchmark Bovespa stock index fell 0.9
percent to 64,635.33.
After growth of 7.5 percent in 2010, Brazil’s economy nearly
screeched to a halt late last year, posting a full year gain of
just 2.7 percent – far less than originally predicted. The
government hopes the new measures will help it reach its
projection for growth of as much as 4.5 percent in 2012.
Though welcomed by Brazilian industry as helpful, the
package was criticized by many economists and business leaders
as falling far short of the true reforms necessary to help
unburden the Brazil’s economy, long held back by high taxes and
red tape.
“This doesn’t solve the problem,” said Maur -cio Rosal, chief
economist at Raymond James in Sao Paulo. Long-term, he added,
“this does nothing to address the problems of competitiveness.”
INDUSTRY RECOVERY NOT CLOSE
Tuesday’s measures came as government figures showed that
industrial output in February recovered most of its lost ground
from a sharp drop in January, when Brazil’s overvalued currency
and economic ills abroad continued to erode the competitiveness
of manufacturers.
Industrial production rose a better-than-expected 1.3
percent in February posting the best monthly growth since
February 2011. In January, industrial output fell a 1.5 percent
decline from a month prior, revised by the IBGE from a
previously reported 2.1 percent decline.
Despite the snap back in February, analysts said the
improvement hardly indicates the sort of robust production that
would indicate a genuine recovery.
February’s industrial production fell 3.9 percent from a
year earlier, running below year-earlier levels for a sixth
straight month.
Economist Thiago Carlos, of Link Investimentos in S GBPo Paulo,
warned against excessive enthusiasm about the positive data.
“We can’t say industry is recovering. It’s not. It’s still
weak and it keeps suffering from problems of competitiveness and
there is no real improvement on the horizon,” he said.
Mantega said the government would also continue to enforce
measures to stem the rise of Brazil’s currency, whose
appreciation in recent years has made imports cheaper and
exports less affordable overseas.
While recent moves to raise taxes on certain financial
transactions and speculative capital have curtailed the rise in
recent months, the real is still about 30 percent stronger than
at the depths of the 2008 global financial crisis.
