Big-spending Brazil battles inflation

Feb. 28, 2013 at 2:08 PM
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BRASILIA, Brazil, Feb. 28 (UPI) -- Big-spending Brazil is battling renewed inflationary threats to its booming economy as state spending on World Cup and Olympics and related infrastructural projects kicks in.

Brazil will host FIFA World Cup next year and the Olympics in 2016. The twin endeavors have practically put the government's infrastructural development on an emergency footing.

Getting ready for the World Cup and an expected surge in international tourism during the tournaments and then the Olympics has spurred state spending on a vast scale. Government data on current spending remains scarce.

Responding to critics and media concerns, President Dilma Rousseff this week issued assurances she enforce policies that would keep costs and inflation in check. But the president's promise has met with widespread skepticism.

Rousseff singled out costs Brazil incurs in order to generate more business but also cited the government-led spending programs to improve the country's infrastructure.

Communications and infrastructural networks, including airports, roads, railways and ports are part of a vast program of spending that critics say is certain to offset any gains the government hopes to make through cost-cutting programs.

Brazil has no choice but to become more competitive and to reduce the costs of doing business, she said.

Exporters have long complained about the chronic congestion and inefficiency of Brazil's ports. Rousseff said she recognized many of the costs incurred in the country's port management were "unnecessary." Brazil cannot be competitive unless it addresses the problem of avoidable costs.

"Our country has to change and change in the direction of greater competitiveness," Rousseff said.

Inward flows of what critics call speculative investment damaged Brazil's export potential as the national currency real gained value against the U.S. dollar. Gains made in previous years in competitive exports of commodities are at risk of being lost or minimized, economists warn.

Critics say the country's infrastructural development is set to continue inflationary pressures.

Spending related to the sport events is compounded by the state-led oil industry's rush to exploit offshore and sublevel oil reserves. Several projects aimed at tapping into the offshore oil potential have set out multibillion-dollar spending programs.

Brazil aims to become the largest regional oil exporter in less than a decade. Economists warn oil prices may respond adversely to Brazil's entry with up to 6 million barrels a day of oil exports by 2020, unless there is a supply squeeze from other sources.

Brazil's offshore reserves are estimated to contain more than 100 billion recoverable barrels of oil equivalent.

The government has also laid out ambitious plans for social amelioration and poverty reduction programs, which will affect moves to keep inflation in check.

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