Reuters International

Brazil's President Michel Temer gestures as he attends an economics and politics forum in Sao Paulo, Brazil, September 30, 2016. REUTERS/Paulo Whitaker


By Maria Carolina Marcello and Alonso Soto

BRASILIA (Reuters) - Brazil's lower house of Congress approved a landmark proposal to cap public spending in a first-round vote on Monday, a major victory for President Michel Temer's efforts to regain market confidence and pull the economy out of its worst recession ever.

After nine hours, lawmakers approved the measure 366-111, well above the 308 votes or three-fifths majority needed for passage. The constitutional amendment that limits spending growth to inflation still needs another super-majority vote in the lower house and two in the Senate for final approval.

The overwhelming support for the proposal will likely add momentum to Temer's austerity agenda that aims to close a budget deficit on track to surpass 10 percent of the gross domestic product this year.

The vote was Temer's biggest victory in Congress since he took the presidency in May amid a political crisis that toppled his predecessor and former running mate Dilma Rousseff.

"This is a clear sign of Congress' commitment to rebalance the fiscal account and rescue fiscal responsibility," Temer's spokesman, Alexandre Parola, told reporters soon after the tense vote, in which opposing lawmakers exchanged insults and threats.

The lower house rejected all eight opposition proposals to change the amendment, keeping the test intact.

An experienced former lawmaker, Temer has blamed Rousseff for the years of overspending that eroded the fiscal accounts and cost Brazil its coveted investment-grade rating last year.

Temer has promised to shore up the public accounts to breathe new life into the $2 trillion economy now in its second year of a recession that has cost 12 million Brazilian jobs.

Brazil's stocks, bonds and currency have rallied this year on expectations that Temer would be able to rebalance the country's dire finances.

Still, most analysts agree that Temer needs to raise taxes and push ahead with other unpopular economic reforms to stave off a full blown fiscal crisis.

His administration has vowed to submit in October an amendment to reduce the expensive benefits in one of the world's most generous pension systems.


Although the spending cap would mark a sea change for a country used to spending lavishly on public servants and industrial incentives, it has also raised fears of cuts to spending on health, education and corruption investigations.

The opposition and powerful civil servant unions have called to strike down the measure that would impose wage freezes and other penalties on branches of the federal government that breach the spending ceiling.

The office of Brazil's top prosecutor urged Congress on Friday to shelve the measure that it says could jeopardize funding to fight corruption.

Despite the controversy, members of the government's broad coalition of nearly two dozen parties are confident the proposal will be approved by both houses by the end of the year.

"There will be a lot of noise from the opposition and interest groups, but the proposal will get through," said congressman Danilo Forte of the Brazilian Socialist Party (PSB).

The second-round vote is expected to take place on Oct. 24, according to lawmakers and congressional aides.

(Writing by Alonso Soto; Editing by Sandra Maler, Lisa Shumaker and Michael Perry)


 Reuters International