Brazil Finance Minis­ter’s Statement

Author: | Published: 5 Sep 2017
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Brazil has faced, in the past three years, the most serious economic crisis of its measured history. GDP fell by 7.3% from its 2014 level in only two years – a rate which exceeds those of the recessions of 1929-1933 (-5.3%), 1980-1983 (-6.3%) and 1989-1992 (-3.4%). However, since mid-2016, Brazil's road to economic recovery has been paved with far-reaching reforms. Much has been already carried out to resume economic growth, create jobs, increase productivity and competitiveness, and guarantee fiscal sustainability.

Congress has approved a constitutional amendment limiting increases in federal government primary spending to no more than the previous year's inflation rate in the next 10 years. In the subsequent 10 years, each president may propose to Congress a new rule to limit primary spending for the following four years. To respect the spending ceiling without across-the-board cuts, structural reforms are needed. Thus, a constitutional amendment has been presented to the National Congress to reform the pension system, which is set to post growing deficits as Brazil lives through a drastic demographic change. The government has sanctioned a new law providing relief for debt-ridden states without compromising the federal debt dynamics. To raise productivity growth, Congress has already passed laws making Brazilian labour relations and immigration rules more flexible. We are also lifting crushing regulations, reducing the complexity of the Brazilian tax system, implementing a public-private partnership program for infrastructure investment, and working to better integrate the Brazilian economy into international trade and investment flows.

Moreover, we are leaving a lighter footprint on capital markets, which opens up space for more private sector activity. The Brazilian Development Bank (BNDES) has played a fundamental role in stimulating the expansion of industry and infrastructure since 1952. But, in recent years, long-term financing in Brazil has been heavily reliant on BNDES' subsidised credit line. In 2018, the interest rate on BNDES' loans will be replaced by the New Market-Based Rate (TLP, in Portuguese). The TLP will be set on a monthly basis by the Central Bank and will vary according to the consumer price index and the pre-fixed rate of five-year inflation-linked bonds, thus reducing the subsidy financed by the Treasury.

The combination of a responsible and predictable macroeconomic framework and a structural reform agenda will underpin higher economic growth with low inflation for Brazil. Those reforms are also strategic for repositioning Brazil in the world. We could be, for instance, the first country to be simultaneously part of the BRICS and the OECD.

In confronting Brazil's worst economic recession, we have restored the old adage that the best social-welfare program is economic growth. Nevertheless, we understand that many Brazilians need a stronger social safety net. By restoring fiscal sustainability, the reforms will allow diverting more resources to socially relevant areas, such as pre-school and elementary education, means-tested income transfer programs and healthcare.

Brazil has gone through turbulent economic and political times, but its institutions have shown resilience. The economic reforms are the cornerstone of a more just and prosperous Brazil. This is not the agenda of a particular government. This is an agenda for the ages.




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