Brazil’s Rousseff cancels Japan trip as budget crisis worsens

BRASILIA, (Reuters) – Brazilian President Dilma Rousseff yesterday called off a trip to Japan and Vietnam to save money after ordering a budget freeze of 10 billion reais ($2.60 billion) that threatens to grind the government to a halt.

The freeze is a measure aimed at complying with the country’s fiscal responsibility law after Congress failed to pass legislation this week to cut the government’s fiscal target for this year. By law, the government has to contain expenditures to meet the original fiscal savings goal.

“This not a financial, but a budget problem,” a presidential spokesman told reporters. “Starting in December the government can no longer have any new discretionary spending except that essential for the functioning of the state.”

The spokesman said Rousseff’s trip, which had been due to start on Tuesday, was canceled as a result of the freeze.

It was not immediately clear which areas of the government will be affected by the measure.

Facing the worst recession in decades, Rousseff is scrambling to stabilize the country’s accounts after years of heavy public expenditures that have eroded the confidence of investors in Brazil’s once-booming economy.

She is also under pressure to comply with the budget law after the Federal Accounts Court ruled that she doctored the country’s public finances in 2014. Her political opponents have said she should be impeached in Congress for breaking the law.

The arrest of her point man in the Senate, Delcidio do Amaral, on Wednesday for allegedly obstructing a corruption investigation at state-run oil company Petrobras, delayed a planned vote on the bill to change the primary surplus target.

The primary balance, or savings before interest debt payments, is a key gauge of a country’s capacity to repay its debt.

After a collapse in tax revenues, Rousseff’s government dropped plans to seek a primary surplus this year to instead forecast a record deficit of 48.9 billion reais. That deficit could climb to 117 billion reais if the government decides to pay massive debts with state-run banks.

To meet the original goal for a surplus of 66.3 billion reais in 2015, the government would have to freeze 107 billion reais, according to finance ministry calculations. However, the government can only effectively limit 10 billion reais because the rest of the expenditures are earmarked by law.

Congress is expected to vote on the bill to lower the target next week.

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