Brazil to Provide Aid to Thousands Left Homeless After Floods

(Bloomberg) -- Brazil’s government will provide cheap credit and financial aid to help rebuild homes and businesses lost to record-breaking floods in the southern part of the country, while keeping “control and transparency” in its spending plans, according to Planning Minister Simone Tebet.

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The measures are part of President Luiz Inacio Lula da Silva’s efforts to provide emergency assistance to the state of Rio Grande do Sul, where heavy rains sparked devastating floods that have left at least 95 people dead and nearly 160,000 displaced from their homes.

Lula on Monday issued a decree to exempt aid from this year’s fiscal rules, and his government is now in the process of formulating specific response programs that will help local residents afford new homes and the replacement of appliances and other goods lost to the crisis.

“The biggest damage was to people’s lives,” Tebet said in a Tuesday interview with Bloomberg News at her office in Brasilia. “That’s what they lost and that’s something the government can help with financially.”

The floods hit Brazil at a delicate time for the government, which was already facing scrutiny from investors over its spending plans as Lula seeks to boost growth in Latin America’s largest economy. The crisis initially sparked market concerns about potential fiscal and inflationary risks of the government’s relief response, although Lula’s decree alleviated some worries that it would lead to a large-scale effort akin to Brazil’s pandemic-related spending.

Read More: Lula Pushes to Exempt Brazil Flood Relief From Spending Rules

Tebet sought to further calm those fears, saying that the aid programs were “surgical and necessary” and would not impact the government’s overall budget outlook.

Lula’s economic team is still assessing the economic fallout of the crisis and the amount of aid it will need to provide. But the multi-year nature of the reconstruction effort will help limit the budgetary impact, according to Tebet, who on Monday reaffirmed the government’s commitment to its 2024 fiscal goal.

“The government can, as the legislative decree allows, go beyond the spending limit,” she said. “But this does not necessarily impact the budget. There won’t really be a lack of money, but this is something that will be diluted over the years. You don’t rebuild a road in one year, you build a road in three years. You don’t get a school up and running in six months.”

Along with tax benefits and financing assistance aimed at individuals and businesses, the administration will also seek to provide debt relief to the government of Rio Grande do Sul to facilitate the reconstruction of roads and infrastructure, she said.

Spending Reductions

A rising star in Brazilian politics, Tebet finished third in the 2022 presidential election before teaming up with Lula and helping him win a runoff against Jair Bolsonaro. As planning minister, she oversees the country’s budget alongside Finance Minister Fernando Haddad.

Haddad has taken the lead on the administration’s fiscal policy, and is targeting the elimination of its primary budget deficit, which excludes interest payments, in 2024. But it is Tebet’s team that is in charge of developing the plan to reduce public spending that many members of congress and investors say they want to see.

Tebet said she will present those proposals when the timing is right, but that doing so now would only invite pushback amid Haddad’s efforts to close the current budget gap primarily through revenue increases. Her team’s goal, she said, is not simply to hit the target, but to put Brazil on sustainable fiscal footing that prevents the need for additional reforms like the pension overhaul that was approved just five years ago.

“It’s not the spending review that will make us reach the zero deficit fiscal target, it is growth,” Tebet said, adding that Brazil’s economic forecasts for the year have been improving.

Still, she said the reductions could include delinking the expansion of certain social and labor benefits from inflation and economic growth. Pensions and social programs already make up a large share of Brazilian spending, and if every program currently linked to inflation and growth remains that way for the next decade, it could cost the government at least 1 trillion reais ($197 billion), Tebet said.

The minister, however, knows that any such changes would prove difficult under Lula, who returned to office promising to bolster social welfare programs and deliver renewed economic prosperity especially to the poorest Brazilians.

“Everyone who voted for Lula knew: He is a president for whom social policies are his biggest cause,” she said. “No one will tear up money. But it is not the spending review that will solve Brazil’s problem. The spending review will ensure the quality of public spending.”

Still, she sees an opportunity to shift Brazil’s spending priorities in some areas in order to improve its overall budgetary outlook without blunting Lula’s larger goals.

“It is impossible to believe that policies of 30 years ago continue with the same efficiency,” Tebet said. “My role is to put forward, starting next year, a list of how much each updated benefit costs above inflation.”

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