UPDATE 1-Brazil eyes creation of privatization fund not subject to fiscal rules -govt source

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BRASILIA, Aug 4 (Reuters) – Brazil’s government is drawing up a constitutional amendment to create a fund from privatizations and state asset sales to pay down debt, meet court-ordered payment obligations and help the country’s poorest people, a government source said on Wednesday.

Crucially, from a fiscal perspective, the fund will not be subject to the ‘spending cap’, the government’s most important fiscal rule which limits growth in public spending to the previous year’s rate of inflation.

According to the source, the Economy Ministry has already drawn up the amendment, and could submit it to Congress as early as this Wednesday.

The development follows recent revelations over the explosive growth in court-ordered federal payments, which Economy Minister Paulo Guedes said on Tuesday could potentially reach 90 billion reais ($17 billion) next year.

A bill this large would limit the government’s room for discretionary spending on other expenses under the spending cap rule, including the Bolsa Familia welfare program and resources for keeping the public sector functioning.

Critics, however, argue that the fund allows the government to substantially increase spending ahead of the 2022 presidential election, an accusation the economic team rejects.

According to the amendment, 60% of the new fund will be used to pay down public debt, 20% for transfers to the poor, and 20% for installment payments of the court-ordered debts.

($1 = 5.24 reais)

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