| Brazil's Real Plan celebrated its second birthday in July, but still without the constitutional fiscal reform needed to achieve sustained strong economic growth in a low inflationary environment. Is it time to panic? The answer is no at least not for some time. Although the 1995 fiscal balance was a shocker there was a deficit of 5% of GDP, compared with 1994's 1.3% operational surplus president Fernando Henrique Cardoso's economic team began preparing years ago for a long battle with congress. The team say the government's top priority is a reduction in the fiscal deficit, now that it has successfully reduced monthly inflation to below 1.5% and is on target for annual inflation this year of between 13% and 14%. This is Brazil's lowest in 39 years it was 23.2% in 1995 and 941.3% in 1994. Reducing the fiscal deficit is possible, the team argues, even without constitutional reform. They claim to have a list of more than 30 measures that do not involve constitutional change that can be taken to reduce wage and social security costs. These, in combination with a visibly accelerated privatization programme and a new series of IMF-style contracts with state governments, should reduce the public sector borrowing requirement (PSBR) operational deficit to around 3% of GDP this year, compared with 3.5% |