June 15, 2012 / 5:07 PM / 7 years ago

UPDATE 2-Brazil offers cheap credit to boost investment

* Gov’t creates $9.8 bln credit line for states

* Investments aim to shield economy from European crisis (Adds governor comments and background)

By Luciana Otoni and Asher Levine

BRASILIA, June 15 (Reuters) - The Brazilian government on Friday offered 20 billion reais ($9.78 billion) in cheap loans to states, the latest in a string of stimulus measures to bolster investment as Latin America’s top economy struggles to grow.

After a meeting with the country’s governors, President Dilma Rousseff agreed to give out the subsidized loans via the state-owned development bank BNDES to finance infrastructure investment.

Rousseff, a career economist, has struggled to jump-start an economy that has flirted with recession since mid-2011. Risks to Brazil’s economic performance have grown further in the past few months as the European debt crisis threatens another global financial meltdown.

“The federal and state governments are carrying out investments in an anti-cyclical move that aims to lower our exposure to the international crisis,” Finance Minister Guido Mantega told reporters in the capital Brasilia.

He added that the government will ease rules on public-private partnerships in states to boost investments, which have disappointed in the first quarter of the year.

Governors said the new measures will help them spend more on key projects and boost activity in their home states.

“These measures are very important for us to guarantee a recovery in the second half of the year,” said Eduardo Campos, the governor of Pernambuco, the country’s 10th largest economy.

Policymakers are scrambling to make the Brazilian economy grow this year more than the 2.7 percent recorded in 2011 after red-hot growth of 7.5 percent in 2010.

Economic activity grew only 0.22 percent in April from March, official data showed on Friday, highlighting the gradual pace of recovery in the world’s No 6 economy.

SHIFT IN FOCUS?

Rousseff’s administration seems to be shifting its focus to investments after a slew of measures aimed at boosting consumption, such as tax cuts on cars and freezers and record-low lending rates.

Some analysts say Brazil’s consumer-led growth model is overstretched and the country needs structural reforms to lower the infamous “Brazil Cost” - a mix of high taxes, decaying infrastructure and crippling bureaucracy that drags on growth.

Increasingly indebted Brazilian consumers and companies are starting to cut spending. Research company Serasa Experian said on Friday that consumer defaults rose in May at the fastest pace this year.

Rousseff has vowed to keep fostering consumer spending and lower costs for companies by improving the tax system, slashing duties and fighting the country’s cumbersome bureaucracy.

She has scored several victories with legislation that aims to simplify the tax system and lower the federal government’s share in a growing pension bill for public workers. However, economists say the leftist government needs to do more to help businesses deal with growing foreign competition. (Writing by Alonso Soto; editing by Chizu Nomiyama and Andrew Hay)

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