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Three Years of the Real Plan
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Three Years of the Real Plan
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Of all the challenges to the sustainability of the Real Plan, the public deficit is undoubtedly the one that requires the most attention. It is through a true fiscal adjustment, at the state and municipal levels as well as at the federal level, that the basis can be established for sustained economic and social development over the medium and longer term without inflationary pressures.
The results of all the measures related to the behavior of interest rates are beginning to appear in the main fiscal statistics, and they are positive.
Given the pressing need to reorganize the public accounts in order to stimulate savings and, thereby, to create the conditions for investing and generating employment, the government has been making a persistent effort to achieve fiscal equilibrium.
A few measures were implemented even before July 1994. Among them was the creation of the Social Emergency Fund ("Fundo Social de Emergência" - FSE), which later became known as the Fiscal Stabilization Fund ("Fundo de Estabilização Fiscal" - FEF). The objective of the FEF is to break, temporarily, the relationship between receipts and their distribution until the approval of the constitutional reforms enables the federal government to allocate public resources more efficiently.
The federal government did more, however, than create and extend the FEF and press for the approval of the constitutional reforms. In addition to these steps, it also struggled to facilitate the privatization programs at both the federal and state levels.
Federal Government Measures to end the Public Deficit
At the federal level:
- Reformulated the guidelines for the budget/financial program, harmonizing the budgetary process with its financial implementation.
- Developed an expenditures calendar for all the public bodies utilizing budget resources.
- Programmed expenditures according to the project and sector of activity.
- Tightened the control on personnel expenditures through a series of discreet actions, e.g., by improving the management of wage and salary payments.
- Improved the tax system by changing several tax laws, such as the corporate income tax.
- Created the Brazil in Action Program. This program, seeking to improve the allocation of budget resources, stresses investments that give priority to economic and social development.
- Undertook several actions in the Social Security area that are designed to increase receipts and to control expenditures. Of special relevance were the changes made in the rules for granting special retirements.
At the state and municipal levels:
- Allowed the Federal Savings Bank ("Caixa Econômica Federal") to help solving the financial problems of states that are willing to reform their fiscal situation.
- Adopted mechanisms to help the state financial institutions, looking toward their privatization or transformation into development agencies.
- Refinanced state government debts through the Program to Assist the Restructuring and Fiscal Adjustment of the States ("Programa de Apoio à Reestruturação e ao Ajuste Fiscal dos Estados"). These programs encourage the collection of taxes and discipline expenditures. They promote also the gradual reduction of state debts through the sale of state companies and the granting of public service concessions.
- At the level of federal government enterprises:
- Strove to control current expenditures.
- Managed wage negotiations firmly.
- Prohibited measures seeking to increase the transfer of resources from the enterprises to closed retirement systems.
- Identified assets not being utilized for operations so that they could be employed to reduce debts or could be used for investments to improve operations.
The results of all these measures, combined with the behavior of interest rates on public debt instruments, are beginning to appear in the principal statistics on fiscal affairs. According to the Central Bank, the operational deficit of the public sector has been gradually declining since it reached 4.8% of GDP in 1995. During 1996, it fell to about 3.9% of GDP; as of March 1997, it approximated 3.6%.
