By Marcela Ayres
BRASILIA (Reuters) -Brazil’s incoming Finance Minister Fernando Haddad on Wednesday said fiscal expansion would not help the economy at the moment and the government needs to organize its finances to allow lower interest rates, tamping down fears of a public spending spree.
His comments helped to calm market concerns about an explosion in public spending under leftist President-elect Luiz Inacio Lula da Silva, who takes office on Jan. 1. Haddad’s comments and slowing U.S. interest rate hikes took pressure off the Brazilian currency after it hit a two-week low on Tuesday.
“There are situations that demand countercyclical actions … but we are not at a moment when fiscal expansion will help the economy,” he said in an television interview.
Haddad said the only stimulus for Brazil’s economy would come from the central bank cutting rates, but that would depend on signaling sustainability for public accounts.
“If we signal that we have restructured public accounts in a sustainable way, it will be possible to bring interest rates” down, he said.
Haddad said a spending package backed by Lula meets campaign promises and fixes budget gaps left by outgoing President Jair Bolsonaro. It still has to be approved by the lower house of Congress after passing the Senate.
That legislation raises a constitutional spending cap while providing for the government to establish a new fiscal framework to keep a lid on public debt. At his first news conference after his appointment on Tuesday, Haddad said he aimed to define those new fiscal rules as soon as possible, without giving details.
(Reporting by Marcela Ayres; Additional reporting by Luana Maria Benedito; Editing by Brad Haynes, Anthony Esposito, William Maclean and Marguerita Choy)