São Paulo – The new measures announced by the government to stimulate industry, especially that of vehicles, are considered positive by specialists, but will probably not have the same effect as similar actions adopted in answer to the 2008 international financial crisis, which resulted in strong recovery of the auto sector.
"It will not be [an answer] at the same level as that of 2008,” said on Tuesday (22) the professor of the Economics professor at the Economics and Administration College (FEA) of the University of São Paulo (USP), Celso Grisi. "At that time, demand was greatly depressed and families were less indebted,” added the economist of the Institute for Studies in Aid of Industrial Development (Iedi), Rogério Cesar de Souza.
On Monday, due to the deceleration of the Brazilian economy, a scenery worsened by the European crisis, the government of Brazil lowered the Industrialized Product Tax (IPI) on cars, even reaching 0% in the case of vehicles with engines of up to 1,000 cc; lowered Financial Operations Tax on loans for the purchase of vehicles; freed some of the compulsory deposit by the Central Bank if turned to car purchases; and even cut the interest charged by the Brazilian Development Bank (BNDES) for the acquisition of capital goods.
The effects should not be felt immediately, probably only in the second half, and should not be sufficient for the economy to grow as much as expected by the government: 4.5%. The expectation of economists, with the incentives, is for the Gross Domestic Product (GDP) to grow around 3%.
The Finance minister himself, Guido Mantega, recognized, on Tuesday, that the GDP should grow less than expected, but added that he still believes in expansion of 4%, according to an article by Agência Brasil.
Souza pointed out that the auto industry has a "very great productive chain” and capacity to "react rapidly”, which, aligned to the trajectory of lower interest rates, should generate a positive impact on the economy as a whole.
Grisi added that the package of measures "is fortunate" as carmakers and banks, those mostly benefited, were giving signs that they could start dismissing personnel in coming months.
Investment
With the new measures, once again the government is betting on consumption to strengthen the economy. Although the country still has much space in the domestic market, economists believe, however, that greater indebtedness of families and higher default in recent months shows that betting all coins on this will not be enough in future.
It is necessary to invest to strengthen the economy. Direct investment in Brazil – public, private and foreign – answers to 19% of GDP, whereas the least necessary to guarantee growth of 3% would be 21%, according to Grisi.
In this respect, according to Souza, it is necessary to lower investment with long-term measures, like tax reform, postponed by successive Brazilian governments for over a decade. Mantega himself said that it is necessary to work on a reform and reduce taxes. "Long-term actions are necessary, throughout the economy, not just for a specific sector,” said Souza.
In the same line, the president of the National Confederation of Industries (CNI), Robson Braga de Andrade, pointed out, according to Agência CNI, that actions to stimulate consumption should be followed by other, long-term, structural measures. "We must extend IPI reduction to several other sectors, reaching the productive chain and not just the end product,” he said.
On the other hand, in Grisi’s point of view, as domestic public and private investment is not enough to guarantee the sustainable growth of GDP, Brazil must stop frightening foreign capital. To him, the exchange measures adopted early last year, to contain appreciation of the Brazilian real, and the fight of the government against banks for the lowering of interest rates on financing, added to the worsening of the European crisis, have resulted in the cancellation or delays in foreign direct investment in the country, added to a great outflow of foreign funds in the capital and finance markets.
In Grisi’s evaluation, successive changes in the IOF on foreign transactions, the relaxing of monetary and fiscal policies and the struggle with banks are causing the Brazilian market to "lose forecastability" and "legal safety", which scares foreign investors away.
He pointed out, however, that the tendency for foreign capital, once the worst of the international crisis is over, is to migrate to emerging markets with solid economic fundaments. In this respect, the fact that the measures issued last Monday were decided on in an agreement with industry and the banking sector signalises "reconciliation", and that is positive to improve the foreign image of Brazil.
The Brazilian Federation of Bank Associations (Febraban), for example, informed, according to the Agência Brasil, that the measures are going to contribute to a lowering of bank spread. "These measures should contribute to speeding up growth, to expansion of credit at rates greater than the growth of GDP and to continued reduction of bank spread and of the cost of credit operations,” says the organisation’s statement.
*Translated by Mark Ament
