5 min.
Brazil is back on track

Michel Temer, President of the Federative Republic of Brazil

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% growth in GDP in 2017. Inflation, which was about 10% in May 2016, stands bellow the inflation target, recorded at 2.54% in September. Purchasing power got better with a real increase of more than 6% in wages. The basic interest rate for May was 14.25%, and has been dropping in a sustainable manner. The SELIC rate is currently 7.5%, 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 Reais to the public coffers (current 18.5 billion pound sterling).

Our trade balance has been breaking records: Brazil reached a trade surplus of US$ 58.477 billion between January and October 2017 (an increase of 51.8% in relation to the same period of 2016). Industrial output increased by 1.6% over the same period (in May 2016, it was in free fall of 9.8%). Vehicle exports grew by 55.7% in relation to 2016 and have already
reached the 560 thousand units produced in 2017aggregate. Sales of new vehicles in the domestic market grew by 9.28% this year in comparison with 2016. Grains crops in Brazil should reach the historicrecord of 242 million tons in 2017, an increase of 30% in comparison to the last year. As a reflection of the acceleration of the Brazilian economy, port usage has grown by 5.7% in 2017 and the domestic aviation market also increased by 6.6% 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 (Jan 2016) to 239 basis points (Oct 2017), a reduction of 56.1% 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 76 thousand points in September 2017, recovering from 38 thousand points at which it stood in January 2016. The aggregate FDI data for the first semester of 2017 was US$ 40.3 billion (US$ 78.9 in 2016). The energy auctions, which were held under the new regulatory model, including those of pre-salt, raised 22 billion Reais (about 5.1 billion pounds sterling). Only in the energy sector, investments of 444 billion Reais (102.9 billion pounds sterling) are expected over the next few years, creating up to 500 thousand new jobs.

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 Reais in 2015 (7.4 billion pounds sterling), they generated profits of 4.6 billion Reais in 2016 (0.2 billion pounds sterling) and 17.3 billion Reais (4 billion pounds sterling) in the first half of 2017. Aiming at raising productivity, an employment reform has been passed. Without removing rights, the law was modernized and brought workers from the shadow economy into formal employment.

The success of this agenda has already been reflected in employment recovery, with an increase in the employment rate indexes. The accumulated surplus for 2017, measured by the General Register of Employed and Unemployed Persons of the Ministry of Employment (CAGED-MTE), is of 163 thousand jobs created, in comparison to the loss of 448 thousand jobs between January and May 2016. According to measurements of the Brazilian Institute of Geography and Statistics (IBGE), in the third quarter of 2017 alone more than 1,061 million jobs were created in Brazil, and from those more than 524 thousand people have left the unemployed ranks. Employee real aggregate income rose 3.9% in the third quarter of 2017 in comparison to the same period of 2016.

The reinstatement of fiscal responsibility along with the economic growth has enabled an increase in the resources allocated to social welfare. Social welfare programmes, 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 'Bolsa Família' benefit has been increased by 12.5% (after more than two years without
any adjustment) and waiting lists have been extinguished. The Government has gone further and launched the 'Progredir' (Getting ahead) programme, which helps families on benefit to obtain employment and credit, and as such, to achieve autonomy. Boldly, I have released the dormant FGTS accounts and advanced the PIS-PASEP withdrawals, which has benefited millions of Brazilians and injected R$ 60 billion into the economy.

The health and education budgets have increased. The rationalization of health care management has brought more resources to essential services: R$ 4 billion have been redirected for equipment purchase, opening of new health care units and hiring new staff. The
'Farmácia Popular' (low cost Pharmacy) programme had been spending 80% of its budget on administrative costs. A new allocation system has increased the resources for the purchase of essential medicines by R$ 100 million/year. In the field of education, the high-school/secondary reform has updated the curriculum for the students taking into account individual skills and the realities of the employment market. The Student Financing Fund (FIES) has been reassessed offering 75 thousand new study places, and has now become sustainable. Over R$ 700 million 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 been taken towards the universalization of access to broadband Internet in 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.

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