Brazil’s lower house of Congress approved a constitutional amendment for a “war budget” to separate coronavirus-related spending from the government’s main budget and shield the economy as the country surpassed 10,000 confirmed cases.
The war budget still needs the Senate’s approval by three-fifths of the votes in two rounds expected to take place next week.
The lower house approved the main text of the bill with 423 votes in favour and one opposed in a second round of voting after a first score of 505 in favour and two against.
The amendment creates an extraordinary regime to prevent expenses related to a “state of emergency” decree triggered by the pandemic, which is valid until December 31, from being mixed with the federal budget over the same period.
Besides easing fiscal and budgetary constraints to speed up measures tackling the outbreak, the war budget also grants the Brazilian central bank emergency bond-buying powers to stabilise financial markets.
“We must ensure money reaches key sectors, so as of this week we’ll start discussing what we want to buy and what kind of intervention we want to make,” Brazil’s central bank president, Roberto Campos, said in a live presentation to XP brokerage.
Campos sees the ongoing crisis as much worse than the 2008 one, noting that the Covid-19 outbreak has unleashed the largest outflow ever seen in emerging markets, with the Brazilian stock exchange and currency among the most affected.
“But we moved quickly to boost market liquidity and we still have an arsenal of measures to adopt,” he said, adding the financial system is solid enough and actions altogether have the potential to inject up to 1.2tn reais ($224.32bn) in liquidity.
Campos declined to comment on the duration of social isolation measures, but urged market participants to avoid breaching contracts, echoing earlier remarks by Economy Minister Paulo Guedes.
“We can renegotiate everything, rents, salaries, but we must not default,” Guedes told representatives of retail and services industries separately.
He recognised, however, that some measures taken to “oxygenate the economy,” such as a cut in banks’ reserve requirements, are not yet having the desired effect. “Banks are conservative and the credit is not reaching those who need it,” he said.
Guedes reiterated that, despite the focus on emergency measures, he believes economic recovery still relies on structural reforms including tax cuts. “Our way out of this crisis further ahead will be through tax cuts... creating jobs must be easy, cheap and stimulating,” he said.
Brazil’s coronavirus death toll rose to 431 from 359, while the number of confirmed cases jumped to 10,278 from 9,056, according to health ministry figures released on Saturday afternoon. Brazil is among a number of countries struggling to get medical supplies from China.
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