UPDATE 2-Brazil finmin seeks 2010 budget cuts to cool economy

* Budget cuts aimed at cooling down Brazil’s economy

* May, March spending cuts total 31.5 bln reais

* Mantega says “won’t allow” GDP to expand 7 pct in 2010
(Adds total budget cuts, comments, byline)

By Ana Nicolaci da Costa and Maria Carolina Marcello

BRASILIA, May 13 (BestGrowthStock) – Brazil’s government plans to
cut 31.5 billion reais ($17.77 billion) from its 2010 budget,
seeking to put the brakes on a red-hot expansion that has
stoked inflation in Latin America’s largest economy.

Finance Minister Guido Mantega unveiled spending cuts of 10
billion reais on Thursday, on top of 21.5 billion reais in
expenditures already taken out of the budget in March.

In total, the budget cuts will be equivalent to 1 percent
of gross domestic product, he added.

“We consider this sum to be enough to work as a
counter-cyclical measure,” Mantega said at a news conference.

Investors have pushed yields on interest rate futures
higher in recent weeks on expectations Brazil’s economy may be
growing too fast. Concerns about rising consumer prices
prompted the central bank last month to raise borrowing costs
for the first time in almost two years.

On Wednesday, Mantega said in an interview with Reuters
Insider that the government would soon announce “meaningful”
spending cuts. The reduction in this year’s budget would have
more impact to cool the economy than an increase in interest
rates, he added. For details, see [ID:nN12222276]

Budget and Planning Minister Paulo Bernardo said it was
unusual for the government to unveil two spending freezes so
close together as it did this year, but it was part of a
broader move to bring growth to more sustainable levels.

“We became convinced that it was important to also help
with fiscal policy,” Bernardo said

Brazil’s gross domestic product grew at an annualized pace
of 8 percent in the first quarter, but the government expects
slower growth in the second quarter, Mantega told reporters in
Brasilia.

The government “won’t allow” the economy to expand 7
percent and has several tools to keep growth at a sustained
pace below that, he said.

“The best way to throw a bucket of cold water in this heat
— if it is indeed boiling, warming up — to cool down demand,
a strong and fast way would be for us to reduce demand coming
from the government, current spending,” Mantega said.

The budget cuts would be presented to President Luiz Inacio
Lula da Silva for final approval in the coming days, Mantega
said.

Stock Market Today
($1=1.772 Brazilian reais)

UPDATE 2-Brazil finmin seeks 2010 budget cuts to cool economy