The reason why the government wants to slash the primary surplus is for mere politics. The Lula administration doesn't want his voting base to see budget money sitting on the coffers -- funds that are ready to be paid to bankers and investors as interest on the country's debt. Because of the congressional decision to delay the earmarking of the funds, the government (according to a source at the planning ministry) will have to scour for new money and destine it for the SWF by decree. That should happen before Dec. 31.
The worst thing that Brazil can do at this point is to indicate that it will lower the primary surlus with the excuse that the global crisis is enough reason to set aside less for debt-servicing. This will create erroueous signlas over the conduction of economic policy. The country will pay dearly for that in the medium term. By that, the government would be fulfilling its dream of ``punishing greedy bankers'' and renege from its responsibilities towards investors (who in the end poured their money into Brazil with the hope that the country will be willing to honour its debt commitments.) The bottom line is, kudos to the opposition, shame on Lula and his state expansionist model.
In a moment where thrift and prudence should guide government decisions, Lula and his economic team are signaling the opposite -- that is, becoming more ambiguous over its commitment to debt-servicing. The SWF will only help finance Brazilian companies' operations abroad at a moment where there is no need to invest heavily in overseas expansion. Or ... will the Treasury use the money to buy ... U.S. Treasury debt? It's hard to trust Finance Minister Mantega's qualities as a hedge fund manager. Hope this doesn't cost too much to Brazilian taxpayers (me included.)