Brazilian Lower House votes, in its second turn, amendment to cap spending for 20 years

Michel Temer, Brazilian President, won another victory on Tuesday in his efforts to restore fiscal discipline. Yesterday, the Lower House of Congress approved a constitutional amendment to cap public spending for 20 years. Heavy public spending, a recession and a massive corruption scandal revealed by "Lava-Jato" investigation rocking Brazil's political establishment undermined confidence in Latin America's largest economy.

The constitutional amendment would limit the growth of public spending to the rate of inflation of the previous 12 months for up to 20 years. It passed by 359-116 votes, receiving 7 votes less than it did in a first-round vote. The House has yet to vote on six suggested changes to the text before it can send the amendment to the Senate for approval.

While the government easily won the vote - it needed 308 votes to pass - the smaller margin pointed to the challenge Temer faces in enacting an unpopular belt-tightening agenda. The spending ceiling, which can be revised after 10 years, is a drastic measure to plug a budget deficit that ballooned to more than 10% of GDP last year.

President Temer and many economists argue that limiting government spending is crucial for Brazil to curb a growing debt burden that could top 73% of GDP this year.

Opponents of the cap, led by the Workers Party (PT, acronym in Portuguese), sought to block approval, saying it would reduce education and health services for those who most need them and cut spending needed to revive a moribund economy and fight double-digit unemployment. Demonstrators protesting against the measure were removed from the gallery.

To reduce opposition to the spending ceiling in Congress, the government agreed to postpone any spending cap on health and education until 2018.

Confidence that Temer can put the books in order and turn the economy around has placed Brazilian assets among the best performing investments in the world this year. The Real currency has strengthened 26.7% this year and closed on Tuesday at 3.10 to the Dollar, its highest in 15 months.

Source: Mercopress Agency