‘All about the execution now’ — destabilised Brazil heads out on the PR trail
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Emerging Markets

‘All about the execution now’ — destabilised Brazil heads out on the PR trail

Senior financial officials in Brazil are confident that the reforms they have put in place are set to deliver an economic turnaround in a country that has been destabilized by political infighting

Brazilian officials yesterday launched a campaign to convince investors that the largest Latin American economy was back on track in spite of disappointing economic figures and domestic political turmoil.

Roberto Campos Neto, the governor of the Central Bank of Brazil, said that a recovery was being driven by 2% growth in the private sector while the share of the public sector in economic activity was falling. “Economic growth is a bit slower than expected, but it is better in qualitative terms,” he said.

Most of the efforts by President Bolsonaro’s government have so far focused on a wide-ranging pension reform, whose approval is due to be completed early next week. GDP is expected to be around 1% in 2019 for the third consecutive year. “We hit a fiscal wall and we understand we have to do things differently,” he insisted.

But severe political infighting within Bolsonaro’s political party has created an atmosphere of instability, which led the economy minister Paulo Guedes to cancel his trip to Washington to secure  the approval of the pension reform, which is intended to contain the public deficit.

Independent analysts said that at over 90%, the debt-to-GDP ratio would remain too high for comfort for too long. “It does require execution. This is the key,” said Joydeep Mukherji, director of sovereigns at S&P Global.

“Mr Guedes and his team probably have the most ambitious set of structural reforms in any emerging market today. Nobody has a package as big as this one. But it is all about execution now.”

Private Capital

Campos Neto highlighted reforms that were underway or had been delivered. “First, we tackled the fiscal issue, including the pension reform, debt servicing — we are back to the 2012 level when the stock of debt was much lower — and trade opening,” he said.

“We are improving the exchange rate regime and moving towards convertibility, and simplifying business operations, which is the so-called economic freedom law. We have been delivering what we promised.”

He said that his message that Brazil had to be “reinvented” with private capital was going down well with investors. “We have had various waves of growth in the past, but the injection of public cash eventually turned out to be inefficient,” he said.

Marcos Troyjo, deputy economy minister, who is in charge of foreign trade, said the government’s priority was to open up and seek integration in the global economy, reduce bureaucracy and move towards a more business-friendly environment to allow local companies to import and export.

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