Acting Brazilian President Michel Temer on Tuesday announced a series of measures designed to reduce pressure on the country’s overloaded federal budget but admitted that deficits this year will be higher than previously predicted. In a speech to congressional leaders, Temer called on Congress to pass a new set of 2016 budget targets, including a projected primary deficit of R$170.5 billion. The standing deficit projection is just R$24 billion. A proposed change by Temer’s predecessor Dilma Rousseff would have increased the deficit projection to R$96.6 billion. In Monday’s speech, Temer admitted that the budget outlook is “much worse than we expected” and called for swift congressional action on the new goals. Failure by Congress to act on the new targets by May 31 would result in stiff automatic spending cuts that could effectively paralyze the government. Looking forward, Temer said he will introduce a constitutional amendment before Congress limiting the increase in each year’s government spending to no more than the inflation rate of the previous year. The same amendment will also loosen earmarked spending within the budget. Temer also announced a number of executive orders. One bans government institutions from initiating new subsidy programs. Another order will empty the coffers of the government’s Sovereign Investment Fund, currently some R$2 billion, and apply the entire amount to paying down federal debt. Temer also ordered the Brazilian Development Bank (BNDES) to make immediate payment on R$40 billion in federal loans made to the bank in previous years. That amount will also be used to pay down debt. The BNDES, under the order, will pay back another R$30 billion in 2017 and a third tranche, also of R$30 billion, in 2018. Temer told congressional leaders he will introduce a broad social security reform following negotiations with labor unions and other representative groups. The reform will be designed to reduce retirement system deficits. He also called on Congress to pass two reform bills currently on the agenda. One would tighten professional qualifications of managers of state-controled companies. Another would lift the current requirement that state-run Petrobras take the lead in developing any and all offshore oil sites in the so-called pre-salt region.
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