Foreign investors debate the Amazon forest

Hamilton Mourao (vice-president) and federal ministers (listed below) participated in a videoconference with foreign capital investors (also listed below) to discuss matters related to the Amazon forest. Mourao coordinates the Conselho da Amazonia (national council for the issue of Amazonia), and he proposes to recover the structure of environmental fiscalization. He says that today, the fiscalization agencies do not have the capacity to combat the illegal actions of deforestation. The current administration inherited the reduced structures of IBAMA (Institute for Environment) and ICMBio (Institute for Biodiversity), currently facing problems related to budget and hiring restrictions.

Brazilian entrepreneurs are worried about the negative image that the national environmental policy is gaining internationally. In the beginning of this week, 38 Brazilian entrepreneurs sent a letter to the vice-president, asking for measures to contain deforestation. According to INPE (Institute for Spacial Research), registration of fire incidents in the Amazon forest in june of 2020 reache the highest numbers since the year 2007.

Fund: The Amazon fund (Fund Amazonia) is managed by BNDES (National Bank for Social and Economic Development), and had contributions interrupted by Germany and Norway in 2019 after the scandals related to fires in the forest.

Programs: Ricardo Salles (minister of environment) points to projects which international investors can help Amazon preservation: Floresta+ (payment for environmental services) and Adote1Parque (partnership between the 132 conservation units in Brazil).

Follow up: Another meeting with Brazilian entrepreneurs is expected for Friday (July 10), and Ricardo Salles informed that next week a new decree will be ready for presidential signature, which will suspend authorization of use of fire in the Amazon forest and Pantanal. Other biomes will remain with exceptions currently authorized in legislation.

List of federal ministers who participated in the videoconference with international investors:

  • Walter Souza Braga Neto (Casa Civil)
  • Tereza Cristina (Agriculture)
  • Ricardo Salles (Environment)
  • Ernesto Araujo (External Relations)
  • Fabio Faria (Communications)
  • Roberto Campos Neto (Central Bank)

List of capital investment groups who participated in the videoconference with Brazilian government representatives:

  • Legal and General Investment Management (United Kingdom)
  • Nordea Asset Management (Sweden)
  • SEB Investment Management (Sweden)
  • Storebrand Asset Management (Norway)
  • KLP (Norway)
  • Robeco (Netherlands)
  • AP2 Second Swedish National Pension Fund (Sweden)
  • Sumitomo Mitsui Trust Asset Management (Japan)

Limitations of this article: all information in this briefing was gathered through G1 news portal, although I focused in compiling information of a technical nature. My intention is to provide a basic framework for policy analysis on the issue, but more research needs to be done. Meanwhile, feel free to contact me if you have any questions.

References

Conselho da Amazonia [Online] Available at: https://www.gov.br/planalto/pt-br/conheca-a-vice-presidencia/conselho-da-amazonia. Published on: April 23 2020. Access on: July 09 2020. Planalto. Presidency. Vice-presidency.

A frente do Conselho da Amazonia, Mourao tera como foco ‘proteger, preservar e desenvolver’ a regiao. [Online] Available at: https://g1.globo.com/politica/blog/valdo-cruz/post/2020/02/11/a-frente-do-conselho-da-amazonia-mourao-tera-como-foco-proteger-preservar-e-desenvolver-a-regiao.ghtml. Published on: February 11 2020. Access on: July 09 2020. G1 Politica, Blog do Valdo Cruz.

Cobrado por empresarios, Mourao diz que agira para melhorar political ambiental. [Online] Available at: https://g1.globo.com/politica/blog/valdo-cruz/post/2020/07/07/empresarios-enviam-carta-a-mourao-pedindo-combate-ao-desmatamento-e-ele-diz-que-agira-para-melhorar-politica-ambiental.ghtml. Published on: July 07 2020. Access on: July 09 2020. G1 Politica, Blog do Valdo Cruz.

Mourao e ministros fazem videoconferenca com investidores estrangeiros para falar da Amazonia. [Online] Available at: https://g1.globo.com/politica/noticia/2020/07/09/mourao-e-ministros-fazem-videoconferencia-com-investidores-estrangeiros-para-falar-de-amazonia.ghtml. Access on: July 09 2020. G1 Politica, por Guilherme Mazui.

Investidores querem ver resultado, e governo busca reduzir desmatamento, diz Mourao. [Online] Available at: https://g1.globo.com/politica/noticia/2020/07/09/investidores-querem-ver-resultado-e-governo-busca-reduzir-desmatamento-diz-mourao.ghtml. Access on: July 09 2020. G1 Politica, por Guilherme Mazui e Pedro Henrique Gomes.

Instituto aponta aumento de 54% em alertas de desmatamento na Amazonia nos ultimos dez meses. [Online] Available at: https://g1.globo.com/natureza/noticia/2020/06/16/instituto-aponta-aumento-de-54percent-em-alertas-de-desmatamento-na-amazonia-nos-ultimos-dez-meses.ghtml. Published on: June 16 2020. Access on: July 09 2020. G1 Natureza.

2019 Economic Outlook Brazil: Infrastructure and Reforms

On February 4th, the Brazilian President Jair Bolsonaro delivered the yearly Message to National Congress, in its opening ceremony for the 2019 legislative year. This article is based solely on the official document, which is divided in five main chapters: Economy, Infrastructure, Society, Strategic Issues, and Public Administration. It covers highlights related to macroeconomic reforms and infrastructure. And a second post containing highlights related to Strategic Issues and Foreign Policy will follow.

Economic Overview

  • The country ended 2018 with a deficit of USD 14 bi for 12 months (0,7% of GDP).
  • Exports were impacted by the economic crisis in Argentina. However, soy exports to China increased in the second semester due to restrictions derived from US-China trade tensions.
  • The report states that the country faces low external vulnerability as a result of its international reserve volume (USD 380 bi) and the flow of its direct foreign investment.
  • Labour market still experiences high rates of unemployment, but shows slow recovery.
  • Macroeconomic reforms are proposed for social security, fiscal system, public administration, foreign trade liberalization, privatization, and the autonomy of Central Bank.

Fiscal Reform

Brasil faces two major problems in its fiscal system. First is the high tax rates, which can reach 33% of GDP. This is above the other emerging economies and other Latin American countries, which average 20% of GDP). Secondly, its tax system is highly complex. This demands high resources from both private and public sectors, and generates high levels of litigation disputes due to uncertainties. Current fiscal reform proposals are limited to measures that seek to simplify enforcement, reduce tax cost liability and reduce the cumulative effects of some federal taxes. The message also states the continuity of the New Fiscal Regime (or, NRF – Novo Regime Fiscal), introduced by the Constitutional Amendment No. 95, of December 15, 2016, which is relevant for the fiscal rebalancing of the Federal Government. This regime, also called the “spending ceiling” (teto de gastos), established a limit for federal primary expenditure.

Social Security Reform

Payment of Social Security benefits has been the main factor responsible for the increase in total public spending in the last 20 years. In addition, the growth of pension transfers tends to accelerate due to the rapid demographic transition that the country is experiencing. The fertility rate fell considerably between 1980 and 2015, from 4.1 to 1.7 children per woman, which implies lower population growth in the future.

Infrastructure

One of the main problems is the lack of intermodal infrastructure allowing for connections between the national network of seaports to other modes of transportation (road, rail and river). It is necessary to reduce costs by improving port efficiency, which implies integration with the railway and road networks, linking the main regions of the country. It is also imperative to reduce costs and deadlines for boarding and disembarking. The goal is to reach performance levels of ports in countries such as South Korea (Busan port), Japan (Yokohama port) and Taiwan (Kaohsiung port).

The Government plans to launch dredging and land infrastructure projects, as well as completing other projects that will increase its seaport infrastructure capacity by 11.25 million tons /year, 4.11 million tons m³ /year, 250 thousand TEU /year, 13 thousand passengers /year and 50 thousand vehicles /year. The immediate goal is to auction ten port terminals in order to expand current capacity.

In 2018, a bidding announcement was issued for the 30-year concession of 12 airports in the Northeast, Southeast and Mid-Western regions. For the next years, it is projected the continuity of the airport concessions through the release of other bidding blocks.

Its road network, has not received the volume of investments needed for keeping up with the economic activity. Recent surveys indicate that only 38% of the segments are classified as being of good or better conditions. The government estimates USD 7,08 bi in investments for the next 5 planned concessions, which will comprise around 5,000 km of highways.

Source: Mensagem ao Congresso Nacional 2019

2018 Economic Outlook Brazil: Foreign Policy

This is the third chapter of the series of posts on the “2018 Economic Outlook Brazil” that is based on the Presidential Message delivered to the Brazilian National Congress in February, 2018 by President Temer. The official document, in its entirety, advises on the key national policies divided into five central pillars: Economy, Infrastructure, Social, Foreign Affairs and Public Administration.

Read below the policy highlights on Foreign Policy. The other posts are Regulated Markets and Structural Reforms.

1. Introduction

In a global scenario trending towards nationalism, Brazil continues to push forward a diplomacy of universalism by promoting multilateral dialogue and integration. Its foreign policy has been implemented towards the interests of economic recovery, job creation, border security and the promotion of welfare.

During the year of 2017, the Brazilian Government continued to give expression to the universalist vocation of its Foreign Policy. Beyond Latin America and the Caribbean, the Brazilian government tried to deepen its diplomatic relations with European countries, North America, Asia Africa and the Middle East. In 2017, Michel Temer visited China (during the BRICS summit), Norway, Portugal and Russia. He also participated in the meetings of G-20 in Hamburg, Mercosur in Mendoza, the UN General Assembly in New York and the WTO Ministerial Conference in Buenos Aires.

Its participation in multilateral institutions is also to be highlighted, having representatives working for the Inter-American Commission on Human Rights, Committee on the Elimination of Racial Discrimination, International Court of Justice and the International Law Commission. Brazil is also in the Presidency of the World Trade Organization.

2. Migration and Refugee Crisis

In 2017, the new Migration Law entered into force, establishing the guidelines for the Brazilian migration policy through which the country has acted in the UN negotiations for a Global Compact on Migrations. The government is also working on improving its mechanisms for granting refuge. Aiming to facilitate the instructions on the process of request for refuge, an electronic ordering system is under development (Sisconare), which will give greater speed, reliability and security to the processes. A working group was also established for the revision of the resolutions of the National Refugee Council (Conare).

3. China

In 2017, China remained Brazil’s main trading partner, and an important source of investment. During the Presidential visit to China, bilateral agreements were signed in the areas of tourism, health and consumer product supervision. The bilateral cooperation also advanced through the launch of the Fund for Brazil-China Cooperation for the Expansion of Productive Capacity.

4. Africa

The African continent is a permanent priority to the Brazilian Foreign Policy. During the UN Assembly, in September, President Temer met with the President of Egypt, Mr. Abdel Fattah Al-Sissi, to discuss economic opportunities for both countries. In the same month, the Mercosur-Egypt free trade agreement entered into force. Egypt is the main destination of Brazilian exports to Africa.

In 2017, the Brazilian Foreign Minister visited Namibia, Botswana, Malawi, Mozambique, south Africa, Sao Tome and Principe, Ghana, Nigeria, Côte d’Ivoire and Benin. During these visitations, cooperation agreements were signed in areas such as visa facilitation, social security, and air transportation, reiterating the country’s commitment to socio-economic development and the consolidation of peace and democracy in West Africa.

5. BRICS

Within BRICS, progress was made towards the consolidation of the New Development Bank (NDB) with the approval of the 2017 – 2021 General strategy, which included the bank’s second batch of loans and the opening of its first regional office in South Africa. In its 2017 summit, BRICS signed the Plan of Action for Economic and Trade cooperation and the Customs Cooperation Strategy.

6. Middle East

Brazilian Diplomacy is also attentive to the geopolitical situation of the Middle East. It defends the two-State solution to the Israel and Palestine conflicts, based on International Law and opposing to the illegal construction of Israeli settlements in Palestine. President Temer met separately, in New York, with the Israeli Prime Minister and the President of Palestine.

In May 2017, the Brazilian Minister of Agriculture, Livestock and Supply visited Saudi Arabia, Qatar, the United Arab Emirates and Kwait, helping to maintain the Brazilian beef exports. To attract investments, the Brazilian government went on a mission to Saudi Arabia, Bahrein, Kwait and Qatar.

7. Regional Integration

In 2017, Brazil prioritized advances in economic-trade relations and in the areas of border cooperation, physical integration and the fight against transnational crimes within the Latin America and Caribbean region. In commitment to the Ushuaia Protocol, members of Mercosur voted on the indefinite suspension of Venezuela from participation in the bloc. In articulation with other 11 countries in the “Lima Group”, Brazil seeks to favor the return of democracy in Venezuela. Internally, an inter-ministerial group was designed to coordinate the reception of the Venezuelan migratory flow in the Northern region of Brazil. A Resolution of the National Immigration Council made it possible to grant temporary residence to Venezuelan nationals for two years.

In April, the Protocol of Cooperation and Facilitation of Investments of Mercosur was signed, and in December, the block agreed on the Protocol for Public Procurement. A free trade agreement started to be negotiated with the European Free Trade Association (EFTA), formed by Switzerland, Norway, Ireland and Liechtenstein. The negotiations for an FTA with the European Union are still under negotiations.

Brazil has also maintained an active participation in the Amazon Cooperation Treaty Organization (ACTO), especially in the illegal deforestation monitoring program, in the projects for water resources management and forest firefighting in the Amazon basin.

8. Foreign Trade

The results of the Brazilian foreign trade have contributed to the return to growth, as the country recorded a surplus of USD 67 billion in 2017. Both exports and imports recovered some of the dynamism lost during the crisis. In May, Brazil requested access to the Organization for Economic Co-operation and Development (OCDE) and, in attempt to speed operational processes, began the implementation of the Digital Origin Certificates and the Consolidated Portal for Trade.

It is estimated the start of production and exporting by companies located at the ZPE in Ceará (Export Processing Zone) has contributed to leverage the state economy. Other ZPEs are already in advanced stages of implementation in the states of Piauí and Mato Grosso.

Source: Presidential Message to Congress 2018 (adapted translation)

2018 Economic Outlook Brazil: Structural Reforms

This is the second chapter of the series of posts on the “2018 Economic Outlook Brazil” that is based on the Presidential Message delivered to the Brazilian National Congress in February, 2018 by President Temer. The official document, in its entirety, advises on the key national policies divided into five central pillars: Economy, Infrastructure, Social, Foreign Affairs and Public Administration.

Read below the policy highlights on Structural Reforms. The other posts are Regulated Markets and Foreign Policy.

1. Economic Outlook

The year 2017 presented the end of the longest economic recession ever recorded in the Brazilian history. The Gross Domestic Product (GDP) is increasing, inflation has slowed and unemployment and interest rates dropped. The year ended with an inflation rate of 2.95% p.y. (Extended National Consumer Price Index, or IPCA for Portuguese) and with the basic interest rate of 7% p.y. (Selic – Sistema Especial de Liquidação e de Custódia), the lowest since 2002.

Desempenho PIB 2017

2. Cash Withdraws From Severance Funds

Cash withdraw measures adopted in 2017, from public funds, contributed to the reduction of household debt and the expansion of consumption. The Federal Government facilitated access to the FGTS accounts (Guarantee Fund for Length of Service) of 26 million beneficiaries, which injected R$ 44 billion in the economy, along with the anticipation of R$ 2,2 billion in withdraws from 1,6 million retiring beneficiaries of the PIS/Pasep accounts (Social Integration Program and Heritage Formation Program for Public Servers).

3. Fiscal Reform

The Constitutional Amendment No. 95 of December 15, 2016 was responsible for creating the new Fiscal Regime, which limited public spending growth, modified the fiscal policy and, along with other proposals related to public accounts, reduced the uncertainties regarding fiscal policy conduct in the country.

4. Regime for the Fiscal Recovery of States

The Complementary Law No. 159 of May 19, 2017 established the Fiscal Recovery Regime (Regime de Recuperação Fiscal – RRF), seeking to enable the recovery and solvency of states suffering from serious financial crises. In general terms, when adopting the RRF, both State and Union recognize the financial imbalance of the State and specify the adjustment measures, with respective impacts and deadlines, as well as the sources of funding that will be used in the period of the recovery plan.

5. Modernization of Labor Laws

The labor market also presented significant changes and signs of mild recovery. The modernization of the labor laws, a reform approved in July 2017, resulted in the Law No. 13.467/2017, which updated the Consolidated Labor Laws (CLT) framework. The new structure reduces uncertainties and allows greater autonomy for workers and employers to enter into agreements. With the newly adopted legal framework, the government expects to reduce informality in employment and increase job posts and wages.

6. Social Security Reform

In 2017, Social Security registered a record deficit of R$ 268.7 billion. The National Congress is currently debating over its Social Security Reform as an essential component of the reform package for economic recovery, aimed at balancing the public social pension accounts.

The demographic dynamics of the country is imposing significant challenges on policy-making, and in the case of social security, the impacts are direct. Brazil is experiencing an increase in life expectancy, and consequently, in the amount and duration of payments of the security benefits. Added to this is the decrease of reproduction rates, which alters the proportion of active individuals in the job market. This is a relevant fact because the Brazilian social security system is based on simple allocation, being that active workers pay the benefits for those who have withdrawn from the labor market. In 1980, there were 13 adults for each elderly person. Today, there are nine adults for each elderly person. The demographic bonus for federal and state public servers is in an even more critical condition: 1,2 and 1,4 active worker for each beneficiary, respectively.

7. Long Term Rate for Public Financing

The new Long Term Rate (Taxa de Longo Prazo – TLP), established by Law No. 13.483 of September 21, 2017 replaced its former equivalent, as the basis for compensation on the main sources of long-term financing in Brazil. The new TLP will remunerate these financings when applied by the official credit operators contracted from January 2018 onwards. The new rate is composed by the variation of the National Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo – IPCA) and by a monthly prefixed interest rate that is based on the earnings of the National Treasury Notes – Series (NTN-B) for a five-year period. This term reflects the average time for the BNDES (National Bank for Economic and Social Development) loans that use such rate as a basis for compensation.

Source: Presidential Message to Congress 2018 (adapted translation)

GDP growth projected at 2,2% for 2018 in Brazil, reports Central Bank

The Economic Policy Division for the Brazilian’s Central Bank has released its quarterly inflation report[i], projecting a 2,2% GDP growth for 2018. This is certainly good news, specially coming from a two-year recession and 0,7% in 2017.

The executive summary states that the set of reported indicators of economic activity is consistent with a gradual recovery of economic activity. GDP grew for the second consecutive quarter in the second quarter of 2017, which, together with high-frequency sectoral indicators, led to upward revisions in the projections for this year’s GDP growth. Also, highlighting the positive performance of the services sector, which benefited from continued recovery in retail sales, and significant expansion of household consumption, after nine quartterly drops (there is evidence that the withdraws from FGTS accounts – worker’s social security deposits – contributed to the increase in consumption).

Unempolyment rate has also receded in the quarter ending in July, with net creation of 80 thousand formal Jobs, in comparison with net destruction of 258,4 thousand Jobs in the same period of 2016. Furthermore, the evolution of the country’s external transactions remained favorable in the quarter ending in July, when the current account posted a historically low deficit, especially due to the trade surplus recorded in the period.

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[i] An executive summary version of the Inflation Report – September/2017 is available in English, at the official Central Bank’s page.