São Paulo – Whoever the next Brazilian president-elect is, he or she will need to take effective measures to spur the economy into growth, without compromising natural resources or hurting people’s pockets.
According to specialists interviewed by ANBA, the next leader will have to implement an agenda of reforms involving taxes, long-term economic planning, Amazon preservation, myriad infrastructure projects, inflation reduction and competitiveness enhancement. See below the main demands in agribusiness, sustainable development, infrastructure and foreign trade, and the ideal economic policy.
Macroeconomics
An Economics professor at the Pontifical Catholic University of São Paulo (PUC-SP), Antônio Corrêa de Lacerda claims the next administration’s challenge resides in rebalancing the so-called “economic tripod,” i.e. keeping inflation within the target range set by the Central Bank in 1999, keeping a floating exchange rate and the primary surplus, which consists of savings for paying interest on the public debt.
The annual inflation target is 4.5%, allowing for up to two percentage points variation up or down. In the 12-month period ended August, the Extended Consumer Price Index (IPCA), which measures official inflation rates, stood at 6.35%. Q2 growth was down 0.6% from Q1. The government’s growth expectancy is 0.9%, the exchange rate is going up and the surplus is falling short of the government’s own target.
To Lacerda, dependency on exchange rate fluctuation must be reduced, a more solid fiscal policy must be adopted – one that allows a lower interest rate (currently at 11%) – and a tax reform is in order.
“The main thing would be a novel approach to the role of the exchange rate. The dollar is now priced at R$ 2.30 due to over US$ 90 billion worth of swap operations conducted by the Central Bank. If the exchange rate was truly floating, then the dollar would be selling for R$ 2.50 or R$ 2.60 today,” he said. “We need a more solid fiscal policy, one that makes headway for interest rates to be lowered (without affecting inflation), because these rates are not stimulating production or investment right now. Such a policy would entail cost cutting and a tax reform,” the economist said.
Agribusiness
The executive director of the Brazilian Agribusiness Association (ABAG), Luiz Cornnachioni, remarked that the ABAG and Fundação Getúlio Vargas’ Agribusiness Centre have released a document indicating the main challenges that lie ahead for the industry, the only one to post a low growth rate in the comparison between Q2 and Q1. The document posits that five sectors need developing: sustainable development with an emphasis on income, credit and insurance; competitiveness, with infrastructure improvements; production oriented towards markets with which Brazil sustains international agreements; legal safety as pertains to land ownership, labour laws and land concessions to foreigners; and institutional governance.
“These points must be covered if we are to leverage our agribusiness. We need a better, safer economy and we need more open markets. Without this, we cannot evolve nor grow. If we don’t address these issues, we are going to lose space (on the international scenario). Commodities’ prices are not going back to what they were in the past few years. We need a strong Ministry of Agriculture and we need a dedicated communication channel with this ministry,” said Cornnachioni.
Infrastructure
One of the main challenges to Brazil’s growth is infrastructure. From 2012 onwards, the government started implementing modernization projects for ports, airports, railways and roads. Some of the projects indeed went from plan to action. Such was the case with airport and road concessions to the private initiative. Last year, president Dilma Rousseff enacted a new regulatory framework for ports, but the railway concessions are still being discussed.
The Public Policies analyst at the National Confederation of Industry (CNI), Ilana Ferreira, said the government has increased investment in infrastructure and noted that despite the efforts, even more investment is needed. Last July, the CNI released a study listing the main investments the government must make in order for industry to start growing again. The study mentions labour and tax law improvements and works to minimize transportation bottlenecks.
“We have seen a lot of development and a lot of government effort in investing and improving (infrastructure). From 2001 to 2006, Brazil invested R$ 5 billion (US$ 2 billion) on average each year. From 2007 to 2013, annual investment averaged at R$ 11 billion (US$ 4.5 billion). The PAC (Programa de Aceleração do Crescimento, Portuguese for Growth Acceleration Program) was important. Only the demand has grown, and the government’s efforts failed to keep up. Investment takes time to catch up to demand,” said Ferreira.
She noted, however, that the biggest challenge lies in planning investment. “The focus must be on long-term planning. Infrastructure entails complex projects and complex implementation management. It involves large construction projects,” said Ferreira.
In addition to planning out investment, the government must increase the sums allocated to new projects. From 2001 to 2010, according to CNI figures, Brazil invested 2.1% of its GDP in infrastructure. China invested from 7% to 8%. “The best-case scenario would be to apply from 5% to 6% of GDP in infrastructure each year,” he said.
Sustainable development
A professor at the Economics Institute of the Campinas State University (Unicamp), Ademar Romeiro said the two biggest challenges in sustainable development are building basic sanitation networks and adopting a clear, organized policy for the Amazon.
Romeiro posited that lack of sanitation is not a chronic issue in Southern and Southeastern states, but still causes health issues and pollutes rivers in the Brazilian Midwest, North and Northeast.
“At the other end of the spectrum we have the Amazon. Currently, the Amazon is being turned into extensive pastures with low productivity. Burning down the Amazon for grazing land is a crime, and this is what we are doing,” he asserted.
“In fact, a few measures are being adopted (to curb deforestation and fires) but immediate problems remain a cause for concern. One of the practical measures that is underway, but needs improvement, is registration of rural properties. The government needs to keep a register of public lands so that policies to prevent deforestation can be put in place,” said Romeiro.
Foreign trade
In order for exports to grow, the chairman of the Brazilian Foreign Trade Association (AEB), José Augusto de Castro, says the next administration will need to implement labour and tax reforms, and enforce and centralized, transparent policy for the sector. Brazilian exports are dropping when compared to last year. This year, says Castro, Brazil will lose positions in the ranking of leading exporting countries, and revenues from shipments of soy bean, bran and oil and iron ore, some of Brazil’s premier export products, are poised to go down. Castro remarked that the prices of these commodities are dropping, and are unlikely to recover in the next few years.
“Right now, ministries have uncoordinated foreign trade policies. They must be integrated. We cannot have a ministerial policy, we need a government policy,” he said. Castro also lists other issues in Brazil’s export policy.
“Foreign trade today focuses on Africa and South America, each of which accounts for 3% of global imports. We must shift our emphasis towards Europe, the United States and China. When it comes to China, the scenario is a bit different, because China buys a lot of commodities, and commodities will sell themselves regardless. But since 2003 Brazil has not had an official, government-organized mission with businessmen to the United States. This involves an ideological component, but one cannot afford to have ideologies in foreign trade.”
He also said Brazil needs to sign more trade and multilateral agreements. “Otherwise, the country will not grow in this regard, and furthermore we will watch as other countries gain a foothold with our partners, like China is doing in Argentina,” said Castro.
*Translated by Gabriel Pomerancblum
