US embassy cable - 03BRASILIA1413

UNCLAS BRASILIA 001413 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA, WHA/BSC, AND WHA/EPSC 
 
E.O. 12958: N/A 
TAGS: EFIN, EAID, ECON, BR 
SUBJECT:  PL 108-7:  Survey on Brazilian Fiscal 
Transparency and Accountability 
 
Ref.  State 100283 
 
1.  Reftel requests post's response to a survey on fiscal 
transparency and accountability in order to provide a 
report required by PL 108-7.  Below is response for Brazil, 
keyed to questionnaire in paragraph 7 of reftel. 
 
a.  3.  The government publishes a budget with minimum 
delay. 
 
b.  Yes, the combined fiscal position of subnational 
governments is published.  The Central Bank publishes 
monthly data on the combined surpluses/deficits of sub- 
federal governments with a three-week lag based on changes 
in public sector debt balances.  More detailed information, 
based on cash flow reports by states and municipalities, is 
harder to obtain and has a much longer lag. 
 
c.  The budget is published in the official gazette and is 
available on the internet.  The government provides 
detailed summaries of the budget and budget amendments to 
the media. 
 
d.  3.  The federal government has an excellent system of 
budget reporting, and is assisting subnational governments 
improve their budget reporting systems.  Actual budget 
expenditures typically are less than budgeted by congress. 
 
e.  Basic budget procedures are established in the 1988 
Constitution.  The 2000 Fiscal Responsibility Law 
establishes stringent budget guidelines and reporting 
requirements.  The 2000 Fiscal Crime Law establishes 
criminal penalties for public officials that fail to comply 
with specific budget requirements. 
 
f.  3.  There are detailed laws/regulations establishing 
fiscal transparency. 
 
g.  3.  The Fiscal Responsibility Law and Fiscal Crime Law 
entered into force in 2000.  Public officials are 
notionally subject to criminal penalties if they fail to 
comply with the law.  The vast majority of public officials 
appear to take the Fiscal Responsibility Law seriously, 
although the criminal penalties of the Fiscal Crime Law 
have yet to be invoked. 
 
h.  3.  Distribution of tax powers and expenditure 
responsibilities is clear and supported by open and stable 
intergovernmental transfer mechanisms. 
 
i.  Yes, there are independent auditing bodies at the 
federal and state level, although the commissioners are 
appointed by the executive. 
 
j.  3.  Publicly owned entities are under clear control of 
the central government budget process.  A possible weak 
point is lending by government-owned banks, but the banks 
are subject to same regulatory requirements as private 
banks, and subsidized lending is supposed to be covered by 
transfers from the government. 
 
k.  3.  Privatization processes are fully transparent and 
comprehensively reported. 
 
l.  3.  Budget revenue and expenditure estimates are very 
reliable, although a recent increase in inflation has added 
a small degree of uncertainty to revenue forecasts. 
 
m.  Since 1998 the Government of Brazil has been committed 
to fiscal discipline and transparency, first under the 
Cardoso administration and now under the Lula 
administration.  The Fiscal Responsibility Law, passed in 
2000, also imposes stringent requirements on state and 
municipal governments, most of whom take these 
responsibilities seriously.  Fiscal responsibility at the 
subnational level is reinforced by debt rescheduling 
agreements that most states and many municipalities have 
with the federal government.  These agreements establish 
certain budget requirements and give the federal government 
the right to withhold transfers to states and 
municipalities that are in arrears on debt payments. 
 
n.  The U.S. government does not have any programs in 
Brazil that promote accurate disclosure of revenues and 
expenditures.  The IMF and World Bank have worked with the 
federal and subfederal governments on improving fiscal 
management. 
 
Hrinak