São Paulo – Brazil is steering its economy back into “the right track” and taking the necessary measures to grow again, but has yet to broaden its infrastructure, reduce the cost of doing business and reassess its commercial integration, the managing director of the International Monetary Fund (IMF), Christine Lagarde, said this Friday (22nd). She had scheduled a two day visit to Brazil, starting on Thursday (21st), and this Friday (22nd) gave a speech in the 17th Inflation Targeting Seminar promoted by the Brazilian Central Bank in Rio de Janeiro. <\/p>\n
In her speech, Lagarde said that Brazil and its peers in Latin America achieved, since the 1980s until earlier this decade, improvements in social and economic development and cited as examples the middle class expansion, access to the banking system and stabilization of the inflation. She also remarked that these countries were hit by the global crisis that started in 2008. <\/p>\n
However, Brazil is now making an effort to resume growth. Lagarde cited as examples of this effort the recovery of administered prices, such as energy and fuels prices, and the commitment to achieve a primary surplus of 1.2% of the Gross Domestic Product (GDP) in 2015 and of 2% in the next two years. The primary surplus is the savings done by the government to pay interest on public debt. <\/p>\n
“A side effect of this step [of recovering administered prices] has been rising inflationary pressures .To prevent these relative price changes from affecting medium-term market expectations, monetary policy appropriately went into a tightening mode since late last year”, declared Lagarde. <\/p>\n
“Indications are that this policy is working. Even though inflation in 2015 will be on the high side as a result of the relative price changes, the expectation is that it will revert within the band in 2016, and continue to converge toward the central target thereafter”, said Lagarde. “So Brazil is clearly on the right track”. The inflation target midpoint set by the Central Bank in 1999 is 4.5% per year, with a variation of two percentage points up or down. The inflation estimation for this year overcomes 8%. <\/p>\n
Among the measures announced by the government, besides raising the administered prices, are tax raises in sectors such as cosmetics, ending of tax exemptions and a budget cut this year. <\/p>\n
On the other hand, for the country to go back to a strong and inclusive growth, Lagarde said that it’s necessary improve in three areas. One is the development of infrastructure through ports, highways, railways and airports concessions to the private sector, as it’s being already done. Another challenge, she said, is the high cost of business. To do business in the country is expensive due to the complex tax system. <\/p>\n
Among the suggestions, she said that simplifying the Tax on Circulation of Goods and Services (ICMS), which is from the state, and federal taxes would improve “significantly” the business environment. Lastly, Lagarde said that Brazil needs to promote commercial integration with other countries and economic blocs, a policy that would allow the country to participate in “global value chains” and take advantage of technology exchange with its partners. <\/p>\n
In her visit to Brazil, Lagarde visited the slums of Complexo do Alemão, in Rio de Janeiro, and met with president Dilma Rousseff, Central Bank’s president Alexandre Tombini, minister of Finance Joaquim Levy, and Brazilian businessmen. <\/p>\n
*Translated by Sérgio Kakitani and Gabriel Pomerancblum<\/strong><\/p>\n