Brazil in a new drive

Bloomberg

Brazil will spend 34 billion reais ($15.1 billion) to build a million homes for low-income workers as President Luiz Inacio Lula da Silva seeks to spark growth in a slumping economy.

Finance Minister Guido Mantega said the homebuilding drive, which depends on government-subsidized credit lines, would inject 60 billion reais into the economy and increase economic growth by 2 percentage points. The plan would also create 1.5 million new jobs, he said.

Lula is trying to spark economic growth and boost employment as companies cut output to weather the first global recession since World War II. Brazil’s economy, Latin America’s biggest, may contract by the most in at least 61 years, Morgan Stanley said in a March 16 report.

"This is an emergency response, on the one hand to the global economic crisis, and on the other to the housing problems faced by some Brazilians," Lula said in a speech to businessmen gathered in Brasilia to hear details of the plan.

The government’s ability to jumpstart economic growth through a countercyclical fiscal stimulus is constrained by falling tax collection and a commitment to prevent debt levels from rising.

Budget Minister Paulo Bernardo said the housing plan would cost the government 6.5 billion reais this year, spending that will be diverted from other unidentified areas.

Credit, eligibility

Brazil’s underserved housing market was ripe for growth, Mantega told business leaders. Housing credit comprises just 2 percent of gross domestic product, compared with 10 percent Mexico and 30 percent in Spain, he added.

"There is no doubt this is a bold program which will have a significant impact in the Brazilian economy," Mantega told business leaders. "This will be certainly one of the main anti-crisis programs the government will carry out."

Under the program, families earning less than 1,395 reais a month will have to make only symbolic payments, as little as 50 reais per month, in exchange for home ownership. Those making less than 2,790 reais will be eligible for subsidies.

Gross domestic product fell 3.6 percent in the fourth quarter from the previous three-month period, the biggest contraction on record.

Economists lowered their 2009 GDP growth forecast to 0.01 percent from 1.5 percent four weeks ago, according to the median of about 100 estimates in a weekly central bank survey. Morgan Stanley in a March 16 research report said Brazil’s GDP may shrink 4.5 percent.

The central bank has already injected about $90 billion into money and currency markets to lessen the impact of the global credit crunch.

Policy makers will probably slash the benchmark interest rate for a third consecutive time in April to a record low 10.25 percent, according to the median forecast in a central bank survey of 100 economists published March 23.

Brazil’s economy shed a record 788,336 government-registered jobs since November, according to the Labor Ministry.