CORRECTED - UPDATE 2-Brazil posts record budget surplus

www.forbes.com Reuters, 01.30.03, 2:03 PM ET

In BRASILIA story headlined "UPDATE 2-Brazil posts record budget surplus, beats IMF goal," please read in paragraph 13 "... up from 3.49 percent in 2001, " instead of "... down from 4.61 percent in 2001." Corrects percent of GDP. A corrected version follows. (Adds comments, details, byline) By Isabel Versiani BRASILIA, Brazil, Jan 30 (Reuters) - Brazil posted on Thursday a record primary budget surplus of 52.4 billion reais, ($14.7 billion) last year, beating its annual IMF target for the fourth time in a row. The surplus was the highest ever posted, and as a proportion of the gross domestic product, at 4.06 percent, it was the biggest surplus since 1994, said the Central Bank's Economic Department head Altamir Lopes. "It illustrates our desire to clean up the fiscal accounts. And we expect this to continue. In some ways it's irreversible," Lopes said. The primary buget surplus, which excludes interest payments, is a gauge of the government's capacity to service its $250 billion debt. Economists said the surplus was in line with expectations. It beat a targeted 50.3 billion reais, or 3.88 percent of GDP, as mandated by a $30 billion loan deal with the International Monetary Fund. All eyes are now on what what target Finance Minister Antonio Palocci will unveil for 2003 next week. "The new government has promised a target that will be pretty to the eye, but the question is what will Palocci announce," said Cristiano Oliveira, chief economist at Banco Schahin in Sao Paulo. Markets are widely expecting Palocci to hike the primary surplus goal -- which does not include debt costs -- above last year's result and the 3.75 percent of GDP targeted with the IMF. The move should help the new center-left government of President Luiz Inacio Lula da Silva win investors' confidence that it is serious about keeping its finances in order and paying down its $260 billion public debt. "The target for 2003 is going to have to be effectively better than what we did in 2002 to impact the market. I think 4.06 percent is now going to be the base," said Odair Abate, chief economist at Lloyds TSB in Sao Paulo. Brazil beat last year's target despite posting a deficit of 4.71 billion reais in December. It reported a surplus of 3.17 billion reais in November. The nominal budget deficit -- which includes debt costs -- was equivalent to 4.38 percent of gross domestic product in 2002, up from 3.49 percent in 2001. The Central Bank also said the government's total public sector debt finished the year at 881.1 billion reais, or about 55.9 percent of GDP. "It's obvious that's a high number, almost 60 percent of GDP, but we have already passed our worst moments," Schahin's Oliveira said, referring to improving market sentiment that has helped Brazil's currency appreciate, lowering the cost of its dollar-linked debt. ($1 = 3.56 Brazilian reais)