Brazilian officials originally had said the jet fighter purchase would remain on the agenda despite drastic reductions in the military budget. The officials also had hinted the jet fighter deal could be decided this year but no spending made on it during 2011.
The latest developments leave open the possibility that the deal may never take off and Brazil may choose the diplomatic option of leaving the bidders in limbo rather than announcing a cancellation. France, Sweden and Boeing Co. submitted competing bids to win the order, originally believed to be worth more than $6 billion.
The latest cuts in Brazilian defense expenditure are likely to reduce the total defense outlay for this year to no more than $6.5 billion from an estimated $30 billion budget.
Finance Minister Guido Mantega told reporters the government had "no money" to spend on a military equipment acquisition program that could include the purchase of 36 fighter jets and an option on several more aircraft.
"We have no available funds and there's no fiscal space," Mantega said, ruling out any decision on the jet fighters.
The Boeing Super Hornet F-18 is a contender for the deal and faces competition from French Dassault Aviation's Rafale and Swedish manufacturer Saab's Gripen.
The Brazilian tender provoked international marketing frenzy. French President Nicolas Sarkozy lobbied for Dassault and in Sweden there was discussion of whether King Carl XVI Gustaf should be asked to push for Saab's bid.
Brazil's new President Dilma Rousseff, who took office in January, launched budgetary cuts in February, reversing many of the decisions taken by former President Luiz Inacio Lula da Silva.
Rousseff aides began pruning the defense budget as economists warned the country's bloated public spending could fuel inflation.
Brazil's economic woes increased as it found its currency rising on the strength of large cash inflows from investors attracted to Brazil's interest rates.
Officials said the government's current efforts were aimed at preventing a repeat of last year, when growth rates in excess of 7.5 percent overheated the economy. The government has set targets of a lower growth rate -- probably no more than 5 percent -- to allow the fiscal and monetary situation to stabilize.
Mantega said the budget cuts didn't presage a policy shift or the government's retreat from the economy. Instead, he said, the cuts indicated adjustments in response to the current situation.
He said the government had already implemented a stimulus plan in response to the 2008-09 economic crisis and didn't need to keep injecting funds in areas that were up for trimming and streamlining to improve efficiencies and performance.
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