Brazil Finance Minister Henrique Meirelles

Finance Minister Henrique Meirelles (Image: Paulo Negreiros)

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#CouncilBR Recap: Brazilian Government Signals Plan to Stay the Course

By Luisa Leme

The federal government met with the private sector in Brasilia to talk about investment and the country’s economic recovery.

Speakers:

  • Michel Temer, President, Federative Republic of Brazil 
  • Henrique Meirelles, Brazil's Minister of Finance 
  • Ilan Goldfajn, Governor, Brazil's Central Bank 
  • Aloysio Nunes Ferreira, Brazil's Minister of Foreign Affairs 
  • Dyogo de Oliveira, Brazil's Minister of Planning, Development, and Management 
  • Marcos Pereira, Brazil's Minister of Industry, Foreign Trade, and Services  
  • Wellington Moreira Franco, Brazil's Minister of the General Secretariat of the Presidency  
  • Roberto Jaguaribe, President, Apex-Brasil 
  • Bernerd Da Santos, Senior Vice President and Chief Operating Officer (COO), The AES Corporation 
  • Rafael Guedes, Managing Director, Fitch Ratings
  • Donna Hrinak, President, Latin America and Caribbean, Boeing 
  • Rogerio Mendonça, President and CEO, GE Oil & Gas Latin America 
  • Enrique Ostalé, President and CEO, Walmart Latin America, India, and Africa 
  • Samantha Pearson, Brazil Correspondent, Wall Street Journal 
  • Alexei Remizov, Managing Director & Co-Head of Debt Capital Markets Latin America, HSBC Securities 
  • Susan Segal, President and CEO, Americas Society/Council of the Americas 
  • Hugo Villegas, President, Medtronic Latin America 
  • Brian Winter, Vice President of Policy, Americas Society/Council of the Americas; Editor-in-Chief, Americas Quarterly

Leia uma versão do resumo em português.

At the 2017 Latin American Cities Conference in Brasilia, which took place during a tumultuous week for Brazil’s government, President Michel Temer and several ministers—from Finance Minister Henrique Meirelles to Foreign Affairs Minister Aloysio Nunes—focused on convincing foreign investors that the crisis in Brazil is now part of the past and that the country is ready to grow again.

Apex-Brasil’s Roberto Jaguaribe kicked off Council of the Americas’ first conference in Brasilia, which he says is the start of a series of events bringing together investors and government officials. AS/COA President and CEO Susan Segal also gave opening remarks in which she highlighted the importance of coming to the Brazilian capital to understand the public policies taking place and increase confidence in the country—“something at the heart of almost every decision to invest,” she said.

Nunes also said that having the government present at such events shows “concrete proof that Brazil is open for business.” 

Agribusiness

President Michel Temer began his keynote remarks by defending Brazil’s meat products, explaining that out of the 4,383 slaughterhouses in the country only three establishments were suspended after federal police investigations this week. Temer emphasized that agribusiness is one of the pillars of the economy and said that the meat scandal was an exaggeration and “does not reach the totality of the Brazilian slaughterhouses."

But first he asked panelists to share what they considered to be business opportunities in Brazil, to which Medtronic’s Hugo Villegas responded that optimizing health services is one priority. He later explained that improving health care is not about delivering a good product and ending up with an abundance of supply, but ensuring that patients’ health improves. HSBC’s Alexei Remizov said that the Central Bank’s change to the interest rate policy will attract capital for infrastructure, noting that it will be positive to see the outcome of current economic policy shifts and that it’s crucial for these changes to carry over from one presidency to the next. 

Walmart’s Enrique Ostalé talked about the troubles associated with Brazil’s tax structure and suggested the country look to India, which undertook its own difficult tax reform. Looking ahead to trends for the region, he cited Warren Buffett’s “ABCs” of threats to companies’ competitiveness: arrogance, bureaucracy, and complacency. In the case of Latin America, Ostalé warned that these risks relate to the lure of commodity exports for the region.  

Investors face a current global economy that is “particularly complex,” said Central Bank President Ilan Goldfajn, due primarily to the new U.S. administration’s economic policy. In particular, he highlighted the possibility of rising interest rates and protectionism in the United States that would have a direct effect on emerging markets. Still, said the economist, the global economy is also seeing a cyclical recovery that includes Brazil.

“We are quite resilient at this point,” Goldfajn said and pointed to three indicators that the country is less vulnerable to external shocks. First, Brazil’s current account deficit was 1.3 percent of GDP at the end of 2016, less than a third of what it was a few years ago. Second, foreign direct investment is up to 4.4 percent of GDP (3 percent as equity and 1.4 percent as intercompany loans). Third, Brazil’s international reserves stock is up to $370 billion, or 20 percent of GDP. After two years of recession, preliminary indicators show that the economy has stabilized, and Goldfajn said to expect a recovery starting in Q1 2017, and that growth from Q4 2016 to Q4 2017 should hit 2.5 percent. Additionally, he stressed the Central Bank’s work to “anchor” the inflation target at 4.5 percent over the next couple of years.

The reason for this turnaround is the current reform agenda, Goldfajn said. Moreover, the way to sustain this economic growth is to continue with the reforms, first with the social security reform, and then continuing with labor and tax reforms. The faster the reforms, the faster the recovery. 

Foreign trade

Foreign Affairs Minister Aloysio Nunes spoke about the objectives of Temer’s “reformist” government, which designates a “civilizing” role to foreign trade, opening new pathways for economic growth. Nunes said that Brazilian commerce generated a surplus of $48 million in 2016 and has so far grown 18.3 percent in the first quarter of this year. He spoke about the importance of inserting Brazil into the global economy by increasing the number of trade agreements, which he said depends on modernizing Mercosur. Brazil’s government should also reduce commercial barriers to attract investment, Nunes said, citing his ministry’s work toward “a rule-based world with guarantees against the risk of a protectionist spiral that can have harmful effects on the global economy.”

When it comes to Brazil’s vast energy demands, renewables are at this point economically competitive with thermal energy sources, said AES’ Bernard Da Santos. He said the energy company is working to bring new energy storage technology to Brazil in coming months.

How does infrastructure affect the productivity of an oil and gas company? For one thing, said GE’s Rogerio Mendonça, a reliable telecommunications infrastructure allows the company to monitor its rigs out in the ocean remotely, which is much more efficient than having to regularly send out teams for equipment upgrades.

Minister Wellington Moreira Franco of the General Secretariat of the Presidency talked about how the Temer administration has changed Brazil’s bidding and concessions system, reducing government intervention in infrasturcture projects. Moreira Franco also discussed the government’s auctions in the electricity, ports, and airports sectors, noting the “compliance” hurdles the country is facing, like the corruption cases of Lava Jato and Mensalão. Dyogo de Oliveira, minister of planning, development, and management, focused his presentation on bidding prospects in the country this year and signs of economic recovery. He discussed the structural reforms and some of the positive signs in the domestic economy, listing projects already in the second stage of the government’s investment partnership program.

Elizabeth Gonzalez translated this summary. Holly K. Sonneland and Carin Zissis contributed to this summary.

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