Amidst Violent Protests, Economists in Brazil Applaud Spending Cuts

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Violent confrontations were once again seen on Tuesday after Brazil’s Senate approved a bill which will limit government’s spending for the next twenty years, by 53 votes against 16. Despite the protests, economists say that this is the first important measure by the Temer government to help the country’s ailing economy.

In the capital, Brasilia, protesters broke store windows, threw glass bottles and rocks and set fire to a bus and dozens of trashcans, as police tried to disperse the crowd with pepper spray and tear gas. According to authorities more than one hundred people were arrested.

“It looks like a war scenario,” Luis Guilherme Pereira, who came from Parana state to protest against the bill, told Agencia Brasil. “We came with the intention of a peaceful protest and it was not what we expected. We do not want violence, we want to defend our rights as citizens,” he added.

In São Paulo, a group of people moved away from the otherwise peaceful march and forced their way into the Federation of São Paulo Industries (Fiesp), destroying the lobby of the building. Seventeen cities reported some kind of protest and demonstration against the bill.

Yet while some groups criticized the new law, stating that it would hurt the poorer sectors of society, further cutting public investments in social programs, health and education, government officials and economic leaders applauded the measure.

Calling it ‘the most relevant’ economic measure yet adopted by the government of President Michel Temer, Central Bank President, Ilan Goldfajn, asked those attending a conference at Fecomercio in São Paulo, to give a round of applause for the new law.

“The new bill that has just been approved will force us to make choices. If one does not reduce current spending, one will have less for investment,” said the Central Bank official at the FGV/Columbia University Strategies for Growth Conference. “What was approved today is a relevant step in having lower structural interest rates,” added the official.

According to Goldfajn the new bill will deal with the ‘root of the problem’ so that the government will not have to finance its public spending with inflation, added tax burdens or loans.

For Finance Minister Henrique Meirelles, this is a historic measure. He stated, “It is the first time, since the adoption of the Constitution, that the growth of Brazil’s public debt has been addressed.”

“Over 75 percent of expenditure growth, from 1991 to 2015, was due to compulsory expenditure. For us to control the growth of public debt through the growth of compulsory expenditure, it is necessary to change the Constitution,” Meirelles told journalists during a press conference in Brasilia on Tuesday.

The government official said the bill signals to investors that a fiscal adjustment is being successfully implemented in Brazil. “Over the next few years we will see a downward trend in public spending as a percentage of GDP. This is because the GDP is expected to rise above inflation, as expenses grow and inflation increases. ”

Considered by the federal government as the first step to overcome the country’s economic and financial crisis, the approved law calls for federal spending to be limited to a ceiling of the previous year’s budget, adjusted by the inflation measured by the Consumer Price Index (IPCA).