The economic slowdown is temporary; Brazil is doing “homework”; the new middle class has brought opportunities; the infrastructure sector will require private investment; the country is creating more security for business and reducing bureaucracy.
These were the arguments of Brazil’s Finance Minister, Joaquim Levy, during an unprecedented event held at the London Stock Exchange, on 13 May, to encourage investment in the country, according to BBC.
The minister was confident that the results of the fiscal adjustment implemented by President Dilma Rousseff’s government will already be seen in the coming year. “We expect the current slowdown is temporary,” he said. For him, this is partly due to the uncertainty of recent economic results, but the confidence is beginning to stabilize.
The Brazilian economy fell 0.2% in the first quarter of this year, compared to the previous quarter (October, November and December 2014), when there was growth of 0.3%. In the first three months of 2015, Gross Domestic Product (GDP) fell 1.6% over the same period last year, the biggest drop since the second quarter of 2009 (retraction of 2.3%). In 12 months, Brazil’s GDP has fallen 0.9%.
Joaquim Levy said that with the new fiscal adjustment policy, he expects a change in the economic sense. The International Monetary Fund (IMF) predicts a contraction of 1% in the Brazilian economy in 2015 – but with the return to growth in 2016.
The minister also explained to foreign investors the most important measures of economic adjustment. The federal government decided to cut 69.946 billion reais (almost 15 billion pounds) from the Federal Budget as part of the fiscal adjustment to balance the public accounts of the country. The government’s objective is to achieve the primary surplus target of 1.2% of GDP this year, which is the economy for the payment of interest on public debt.
Also part of the adjustment are the provisional measures 664 and 665, approved in the Senate, which restrict access to employee benefits and pensions for death, and increased taxation on the profits of banks, which will yield 3 billion to 4 billion reais.
According to the minister, this course is essential to protect the economy from the inflationary effects of depreciation of the real.
About the “new middle class”, Levy pointed out that more than 30 million people have escaped the poverty line in Brazil in recent years through programs such as Bolsa Família. “Social inclusion for the middle class means more opportunities,” said the minister.
The social inclusion facilitated access to education, in Levy’s opinion, which may influence productivity. According to the minister, increased productivity can help wage growth, since more qualified professionals usually earn more.
Regarding the infrastructure aspect, he said the area needs the support of the private sector and the capital market can play a key role at this point. Levy pointed out that Brazil has a history of concessions – he said telecommunications, energy, highways and airports are managed by the private sector. A new package of concessions was set to be released on 9 June.
Finally, Levy said the government is preparing the environment for investment. “Reducing aggregate risks is essential to motivate people to take idiosyncratic risk,” he said. “Simplifying the process is important to grow business in Brazil. We have to make adjustments to increase business security,” he added.
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