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August 20, 2014
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Brazil relaunches major investment plan

A man looks out from a viewing area of the International Airport of Brasilia President Kubitschek. The PAC 3 will probably include investment in Brazil’s transport sector, Rousseff anticipated.

Rousseff says money for PAC 3 plan to be released in August, ahead of presidential election

SAO JOSé DO RIO PRETO — Brazilian President Dilma Rousseff announced that the third stage of an investment plan, locally known as Growth Acceleration Programme (PAC, for its Portuguese acronym), will be launched in August, just two months ahead of an October presidential election in which she will seek re-election.

With Brazilians worried about slowing growth and rising inflation in Latin America’s biggest economy, Rousseff is hoping that the new investment plan will help her re-election chances.

The second stage of the federal programme was also released a few months before the 2010 presidential campaign, when she was elected under the slogan “mother of PAC.” The PAC 2 was one of the largest federal government programmes for infrastructure work in Brazil’s history.

Rousseff made the announcement during a radio interview in São José do Rio Preto on Friday, after delivering 2,500 new housing units that are part of the programme Minha Casa Minha Vida, targeted to families earning less than 1,600 reais (US$700)a month.

She said that railway work in the region would be included in the PAC 3 but didn’t say how much will be invested nationally as part of the new stage of the programme. A major investment influx could affect Brazil’s rising inflation as the country stuggles to contain the problem.

Inflation

With economic woes already negatively affecting Rousseff’s re-election chances, the Brazilian Central Bank announced last week that it was raising interest rates for the ninth consecutive time, prolonging one of the world’s longest-running monetary tightening cycles after a surge in food prices stoked already high inflation.

“The committee will monitor the evolution of the macroeconomic outlook until its next meeting, to then define the next steps in its monetary policy strategy,” the Bank said.

Although another rate hike in May has not been ruled out, the Central Bank’s statement signalled that the bank would be very sensitive to upcoming economic and inflation indicators to decide whether to continue raising borrowing costs or end the cycle.

Many analysts have said the bank could very well end the tightening cycle in May to avoid hampering the growth of an economy that has been stuck in a rut for the last three years.

The bank will have to find the right balance that allows it to ease inflation and avoid further slowing growth as Rousseff prepares to run for re-election in October.

Inflation ended 2013 at 5.91 percent, exceeding the Central Bank’s 4.5 percent target for the fourth straight year.

Policy makers estimate consumer price increases will accelerate this year even after the raise in interests rates.

Near record-low unemployment and a weaker currency are pressuring consumer prices while the worst drought in decades threatens crops. That increases 2014 inflation expectations, which will make it difficult for the Central Bank to pause its raise in rates after April, according to Pedro Tuesta, senior economist for Latin America at 4cast.

Herald with Reuters, Bloomberg online media

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