Lula Clears State Firms to Spend US$12bn Before 2006 Budget Approval

Brazil's President Luiz Inacio Lula da Silva has decreed the disbursement of 26.2bn reais (US$12.3bn) of the country's 2006 budget to allow state-controlled companies including banks, power holding company Eletrobras and federal energy company Petrobras (NYSE: PBR) to carry out investments, the planning ministry said in a statement.

Lula decided to issue the decree because the 2006 budget has not yet been voted on by congress due to the lack of an agreement between the governing coalition and opposition parties.

According to Brazilian legislation, spending by the government and state-controlled companies is limited to a minimum amount until the budget is approved.

The extraordinary disbursement of 26bn reais represents about 25% of the federal government's total investment budget for 2006, the statement said.

The decree allows Petrobras to start investing 17bn reais of the total 32bn reais projected for 2006 by the budget bill, while Eletrobras can start spending 1.1bn reais of the total 5.2bn reais budgeted for the year. In addition, the decree allows the disbursement of 1.1bn reais for works in ports, railroads and highways, 87mn reais for federally sponsored subway systems and 236mn reais for water works, including a program to clean up the Sao Francisco river, build dams and aqueducts, the statement said.

Part of the impasse between the government and opposition in congress comes from the lack of an agreement over the amount of compensation the federal government should pay for tax exemptions on exports made mandatory by a federal law.

Lula blames this on the unofficial start of political campaigns ahead of general elections scheduled for October 1.

Government congressional leaders are continuing negotiations in congress to approve the budget before April 21. Opposition leaders, however, have said they will try and block ratification of the presidential decree.

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