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Brazil's Temer Says Sacrifices Needed to End 'Bloated' State

Brazil's interim President Michel Temer gestures during the inauguration ceremony of new presidents of state companies, at the Planalto Palace in Brasilia, June 1, 2016.

Interim President Michel Temer vowed on Wednesday not to cut spending on health and education but warned that sacrifices are needed to balance Brazil's public accounts and restore economic growth.

"There is no longer any room in Brazil for a bloated and inefficient state," he said at a ceremony where the new heads of state banks and state-run oil company Petrobras took office.

Temer, who replaced suspended leftist President Dilma Rousseff last month when she stepped down to face a trial in the Senate, criticized the state of the country he inherited, with 11 million unemployed, stubbornly high inflation and a massive budget deficit.

Latin America's largest economy shrank for a fifth straight quarter in early 2016 as a political crisis and sweeping corruption scandal centered on Petrobras weighed on activity, government data showed on Wednesday. Gross domestic product fell 5.4 percent from a year earlier.

Since taking over on May 12, Temer said he had proposed a positive agenda of "national reconstruction," reduced the size of government by having a smaller Cabinet and won approval from Congress for a 2016 fiscal target that reflects a gaping budget deficit that Rousseff left.

He said he will soon send Congress a constitutional amendment limiting federal spending growth to the rate of inflation.

In a reversal of statements by his ministers that caused a public outcry, Temer said there will be no cuts to education and health programs.

Temer also promised to restore financial health to Petrobras , the world's most indebted oil company, which has struggled to tap vast offshore oil reserves.

Temer's man for the job, incoming Petrobras Chief Executive Pedro Parente, said political interference in the company would end. He said fuel prices will be decided according to the company's interests and not government priorities.
Petrobras will sell assets to reduce its debt and not rely on a government bailout, Parente told reporters.

Political appointments have hobbled Petrobras and spawned a sprawling graft and bribery scheme exposed by a groundbreaking investigation that has jailed executives and targeted senior politicians.

Two members of Temer's maiden Cabinet, including former Planning Minister Romero Juca, had to resign within days after leaked recordings suggested they tried to derail the corruption investigation.

Other Cabinet members have been mentioned in plea bargain statements by defendants, raising concern that other ministers could be implicated.

Temer promised that his government will not interfere at all in the Petrobras investigation.