BRASILIA Brazil unveiled a new round of stimulus measures on Wednesday, pledging to boost government purchases and lower subsidized lending rates for companies in another bid to revive a struggling economy.
The new measures, which call for an increase in government purchases this year of 6.6 billion reais, are part of a broader push to shield Brazil from the slowing global economy and the European debt crisis.
"Brazil will take all the necessary measures to protect production and jobs in our country," President Dilma Rousseff said in a ceremony outlining the new measures. "We have the resources to find a path to keep growing."
The Rousseff administration has unveiled a flurry of stimulus measures and targeted tax breaks in recent months aimed at reviving the Brazilian economy, which grew a meager 0.2 percent in the first quarter from the previous quarter and is struggling to regain its footing.
All the measures taken so far have highlighted Rousseff's penchant for state-led economic growth. Be it through tax incentives for key industries or increased lending by state-controlled banks, the government plays a leading role in Brazil's economy, which surpassed Britain's last year to become the world's sixth-largest.
Besides increasing government purchases of everything from buses and trucks to ambulances and bulldozers, Wednesday's announcement also included plans to lower the long-term lending rate that national development bank BNDES charges on corporate loans to 5.5 percent from 6 percent.
The BNDES, which disbursed almost twice as much in loans last year than the World Bank, is the main source of credit for companies big and small in Brazil, making it a key player in economic affairs. The BNDES can charge below-market interest rates for its loans because it gets risk-free funding from the Brazilian Treasury.
Finance Minister Guido Mantega said the reduction in the TJLP, as the long-term lending rate is known, is a sign that interest rates in general in Brazil will keep falling. Brazil's benchmark lending rate, the Selic, currently stands at an all-time low of 8.5 percent and is expected to fall further in coming months as inflation eases.
The national monetary council, which includes the planning and finance ministers as well as the central bank president, will likely cut the TJLP rate at its Thursday meeting.
The push to bolster purchases will give preference to Brazilian-made products by relaxing limits on how much more the government can spend on local products compared to foreign ones.
Rousseff said the administration would continue to keep a lid on public spending to meet this year's budget target, despite the increase in government purchases. That fiscal restraint, however, may limit the scope of any additional stimulus measures.
"That commitment reduces her government's ability to push more on the fiscal policy side," said Gustavo Rangel, chief Brazil economist for ING. "These new measures are an effort to revert that negative investor confidence element, but I doubt it will change the big picture of activity growth in Brazil."
Rousseff has convinced the market her government is fiscally responsible after she put budget accounts back in order in 2011 following two years of heavy spending by her predecessor and political mentor Luiz Inacio Lula da Silva.
However, the career economist is facing growing pressure to spend more to prevent the economy from falling into recession.
Once a star among emerging-market economies, Brazil now risks entering a new age of mediocre growth as its demand-driven model shows signs of strain and the global slowdown reduces demand abroad for Brazilian goods.
Still, Mantega insisted that the Brazilian economy had already turned the corner and that growth would surpass 2.5 percent this year -- more than what most independent economists are predicting but less than last year's expansion of 2.7 percent. The government's initial growth forecast for this year was 4.5 percent.
Rousseff is shifting her focus from demand-side stimulus to measures that bolster public and private investment to help revive an economy that has stalled in the last three quarters.
The government has already slashed taxes on refrigerators, cars and other consumer products to support demand and help an industry that has suffered with a strong local currency and an avalanche of cheap imports.
But the Rousseff government has struggled to spur investment in Latin America's top economy as business leaders are worried about increasingly indebted consumers and a debt crisis in Europe that has sapped demand for local products.
Rousseff is also frustrated with the slow pace of government spending during the first quarter and has demanded that ministries and state-run companies pick up investments, government officials said.
Anemic spending has been a huge drag for the Brazilian economy in recent years with investment equaling about 19 percent of its economy per year. That's way below China's 45 percent and 35 percent in India.
The deluge of stimulus measures have so far failed to raise industrial output and make businesses spend more, highlighting the challenges local companies face with the "Brazil cost": a mix of rising wages, high taxes and infrastructure bottlenecks.
(Writing by Alonso Soto, Editing by Todd Benson, Kenneth Barry and M.D. Golan)