Brazil's Rousseff quickly tackles spending

Mon Jan 3, 2011 1:50pm EST
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By Brian Winter

SAO PAULO (Reuters) - President Dilma Rousseff's new government moved immediately on Monday to tackle the biggest threats to Brazil's booming economy, vowing new budget cuts, measures to deal with an overvalued currency, and even a tougher line in trade talks with China.

The first business day in office for Rousseff, 63, signaled a clearly market-friendly tone, as the pragmatic leftist knows she'll need Wall Street's support -- and money -- to make good on her ambitious goals of ending extreme poverty and expanding Brazil's woeful infrastructure in the next four years.

Planning Minister Miriam Belchior said Rousseff would "listen carefully to the market's concerns" and make necessary cuts to rein in a burst of government spending that has fueled a potentially dangerous rise in inflation.

In a clear departure from her popular mentor and predecessor Luiz Inacio Lula da Silva, Rousseff will also raise concerns about China's undervalued currency and trade protectionism when she visits the Asian giant in April.

Lula had been hesitant to broach the topic, in part because of China's growing importance as a buyer of Brazilian commodities. Yet the relentless appreciation of the Brazilian real, which is the world's most overvalued currency by some measures, has punished local factories and increased pressure on Rousseff to find a solution.

"This is a subject that speaks not just to Brazil but to all emerging markets," Trade and Industry Minister Fernando Pimentel told reporters in Brasilia.

Sources close to Rousseff's government told Reuters last week that she is planning aggressive measures such as targeted tariff increases, including on imports from China, and tax breaks to aid local industry.

Despite the workmanlike emphasis on the tasks at hand, ceremonies in the capital on Monday were also marked by a perceptible euphoria surrounding an economy that will slow down in 2011, but still outpace most of the rest of the world.   Continued...