Brazil’s investment rate will accelerate to as much as 25% of GDP within five or six years following the launch of a large infrastructure programme, a senior minister told Emerging Markets yesterday.
Miriam Belchior, Brazil’s budget and planning minister said the country should achieve higher rates of return from a series of concession projects.
The upbeat outlook shows the Brazilian government now looks determined to address structural weaknesses that have so far prevented it from achieving such a goal. President Dilma Rousseff signalled an intention to boost the investment rate two years ago, when she came to power at a time when it was one of the lowest in the region. But instead of rising, the fixed investment rate declined to 18% of GDP.
Belchior said the previous target was not met because of the global financial crisis. Luciano Coutinho, the president of Brazil’s development bank BNDES, forecast that investment would pick up by “5% or more” this year.
Lifting the investment rate is critical for Brazil to ease supply-side pressures and bring inflation down. Belchior said a new round of concessions, under new, more investment-friendly rules, would be launched in the first half of this year. “The roadshows helped to clarify things and iron out details with investors,” she said.
Belchior also issued the strongest statement to date against allegations that the Brazilian government was not respecting contracts and was changing the rules all the time. She rejected any suggestion that some contracts had been breached in the electricity sector as “political talk”.
Brazil has suffered criticisms in investors’ circles recently after the government decided to promote a double-digit cut in electricity rates for consumers without consultation with utilities. In exchange, the government said their concessions would be renewed. A few state companies in areas that are controlled by the opposition rejected the deal.
“It’s much more a politically-inspired criticism rather than a fact,” she said. “There has been no change in existing contracts, not even a comma.”
Investors have also reacted coolly to a government initiative to create a fund for infrastructure projects by transferring money directly to public and private sector banks, instead of the BNDES. Belchior rejected the suggestion that interventionism may hamper the current efforts to boost investment.
“In 2007, we had to alter the rules and regulations that were actually acting as a hurdle to spending. There were actually rules that were effectively blocking some spending. We had to learn to do infrastructure works again,” she said.
One of the measures is a fast-track procedure to speed the implementation of infrastructure projects and meet the deadlines ahead of the 2014 football World Cup and the 2016 Olympics in Rio de Janeiro.
While trying to put the country on the path to economic growth again – the government expects at least 3% this year after a weak 0.9% in 2012 – the Brazilian government also has to juggle with inflationary pressures and keep its promises to boost social programmes.
Rousseff recently increased social benefits to lift some 36 million Brazilians out of extreme poverty, Belchior said. The government has also launched initiatives to send up to 100,000 students in universities abroad and a work training scheme to improve the skills of 1 million workers.
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