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Brazil gets FDI boost as budget cuts praised

Feb 21, 2014

Foreign investment in Brazil has increased this year, according to data from the Brazilian government which has reined in its spending plans

Foreign direct investment into Brazil could be poised for a rebound this year following a dip in 2013, data released this week shows. The country attracted $5.1bn worth of FDI in January and net portfolio inflows of $2.7bn, according to data from Goldman Sachs.

The news follows the government’s announcement this week of plans to freeze BRL44bn ($18.7bn) in spending, a move that was widely praised by analysts who said the administration was now targeting a more realistic primary surplus.

FDI into the country beat the $3.7bn posted in January 2013, Brazilian finance minister Guido Mantega said on a call with analysts and reporters on Friday. That could signal a rebound in direct investment, he said.

Brazilian FDI reached a $66.7bn high in 2011, but slipped in the following two years, coming in at $64bn last year. Analysts at Bradesco have forecast just $50bn of FDI this year.

The data came after the government adjusted 2014 spending and revised down its forecast for a primary budget surplus to 1.9%, from 2.1%. The move was praised by analysts, although they cautioned that execution of the plan would need to be closely monitored.

"The spending freezes announced by the Brazilian authorities are a step in the right direction and highlight that the government is seeking to better anchor expectations on fiscal policy," Shelly Shetty, head of LatAm sovereigns for Fitch, said in a statement on Thursday.

"The budget target is based on a more realistic, although slightly optimistic GDP growth projection for 2014. The expected reliance on non-recurrent revenue to achieve the target has been reduced from last year. All this implies that the government is willing to make some fiscal adjustments amid an election cycle," Shetty said.

The new primary surplus target was a "very reachable, very reasonable" one, in the view of analysts at Bulltick Research, who said it broke a cycle of "lofty targets" that the country had missed in previous years.

Analysts at Itau said the budget revision offered "signs of goodwill" on Brazil’s fiscal dynamics.

The bank nevertheless expects the government’s revenues to be lower than budgeted and expects a primary balance of 1.3%. LF



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