Brazil’s transformation agenda

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Brazil’s transformation agenda

Just over eighteen months ago, I took office as the President of Brazil with the task of facing up to the most severe economic crisis in the history of Brazil along with its deep social impacts on our people. Faced with this kind of challenge, I have put forward a transformation agenda without recourse to populist measures. The agenda comprises the broadest set of structuring reforms for the past thirty years based upon the pillars of fiscal balance, social responsibility and increase in productivity.

The results are already visible. The economic recession in Brazil has been reversed and the Brazilian economy has grown for the last two consecutive quarters. Some analysts have forecast a 1 percent growth in GDP in 2017. Inflation, which was about 10 percent in May 2016, stands below the inflation target, recorded at 2.54 percent in September.

The basic interest rate for May was 14.25 percent, and has been dropping in a sustainable manner. The SELIC rate is currently 7.5 percent, the lowest in four years, and bank spread has dropped substantially. The responsible decrease in the interest rates alone has ensured an additional 80 billion reals ($24.6 billion) to the public coffers.

Our trade balance has been breaking records: Brazil reached a trade surplus of $58.47 billion between January and October 2017 (an increase of 51.8 percent in relation to the same period of 2016). Industrial output increased by 1.6 percent over the same period (in May 2016, it was in free fall of 9.8 percent).

Vehicle exports grew by 55.7 percent in relation to 2016 and have already reached the 560 thousand units produced in 2017 aggregate. Sales of new vehicles in the domestic market grew by 9.28 percent this year in comparison with 2016. Grain crops in Brazil should reach the historic record of 242 million tons in 2017, an increase of 30 percent in comparison to the last year. As a reflection of the acceleration of the Brazilian economy, port usage has grown by 5.7 percent in 2017 and the domestic aviation market also increased by 6.6 percent in comparison to September 2016.

This virtuous cycle lies at the root of the recovery of trust in the Brazilian economy. The Business Confidence Index (Getúlio Vargas Foundation-FGV) peaked at 90.3 points in October, the highest level since July 2014. The Brazil Risk (Emerging Market Bond Index — EMBI) has dropped 544 basis points (January 2016) to 239 basis points (October 2017), a reduction of 56.1 percent in the sovereign spread.

Also, the five-year Credit Default Swap, which was at 328 basis points, has come down to 173.5 at the present date. The IBOVESPA index has surpassed the 76,000-point mark as of September 2017, recovering from the 38,000 points at which it stood in January 2016. The aggregate FDI data for the first semester of 2017 was $40.3 billion ($78.9 billion in 2016). The energy auctions, which were held under the new regulatory model, including those of pre-salt, raised 22 billion reals.

Economic rationality and predictability measures have improved the business environment by means of initiatives such as de-bureaucratization in the agricultural, services, retail and foreign trade sectors. The State Enterprise Responsibility Law has enabled a professionalization of state enterprises.

Discredited in the past, the state enterprises have now been regaining value. With losses of 32 billion reals in 2015, they generated profits of 4.6 billion reals in 2016 and 17.3 billion reals in the first half of 2017.

The reinstatement of fiscal responsibility along with the economic growth has enabled an increase in the resources allocated to social welfare.

Social welfare programs, which had been previously put at risk on account of fiscal collapse, have been recovered in tandem with the ceilings established under the constitution and thanks to efficiency in public spending.

The health and education budgets have increased. The rationalization of health care management has brought more resources to essential services: 4 billion reals have been redirected for equipment purchase, opening of new health care units and hiring new staff. The Farmácia Popular (low-cost pharmacy) program had been spending 80 percent of its budget on administrative costs. A new allocation system has increased the resources for the purchase of essential medicines by 100 million reals a year.

In the field of education, the high school/secondary reform has updated the curriculum for students, taking into account individual skills and the realities of the employment market.

The Student Financing Fund has been reassessed, offering 75,000 new study places, and has now become sustainable. Over 700 million reals were allocated to this fund, by the same token, avoiding delays in resource transfers. With the launch of the Geostationary Satellite, a decisive step has also been taken toward the universalization of access to broadband internet throughout Brazil.

The results show that the strategy put forward and implemented by the Government is the right one. We have left the economic crisis behind and are back on the development track. Persuaded that there is no time to waste, I will advance the approval of the reform agenda. The next step will be the continuity of reforms, which will ensure solvency and survival of the system, in addition to removing privileges. Simplifying tax law, another priority, will increase the competitiveness of our domestic production. With the indispensable support of the National Congress, of workers and the business community, we are putting Brazil back on track.

*The author is the president of the Federative Republic of Brazil.

Michel Temer
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