The beleaguered Brazilian economy will finally post growth by the end of this year, the country’s finance minister claimed in an exclusive interview with Emerging Markets.
Henrique Meirelles said that Latin America’s largest economy had started to “stabilise which means that the economy will start growing at the turn of the year.
“The economy is still going through an adjustment period, because we have to pass this constitutional amendment [on the spending cap] in Congress. This is clearly part of this adjustment. This will be followed by the pension reform.”
His comments came as Congress was due to start voting last night on the public spending cap proposed by the government of Michel Temer in order to limit the fiscal deficit, which is close to 10% of GDP.
The new administration has already regained the confidence of investors, who have been taken aback by a severe and unprecedented recession in the past two years (including -3.3% this year according to the IMF), as well as economic policy mismanagement under the presidency of Dilma Rousseff, who was impeached in August. But they are now expecting some concrete moves.
“Expectations have already changed and have become positive, but when it comes to put the money on the table, it is a different talk and what investors want to see is real action,” Dyogo de Oliveira, Brazil’s planning minister, told EM.
“Investors do like the way things are going, as you can see this in the valuation of assets that has occurred in Brazil. It shows that there is confidence indeed, but when it comes to sign a new investment, investors want to be sure that the real decision will be made and that real action will be taken,” he said.
STRUCTURAL REFORMS
In another encouraging sign, the lower house of Congress passed a bill on Wednesday aimed at attracting foreign companies to invest in oil exploration and scrap the clause that put the local state-controlled Petrobras in a privileged position in the so-called pre-salt fields.
“We are seeing currently discussed fiscal policies and structural reforms that will take the country into much more stable and hopefully prosperous territory,” said Christine Lagarde, head of the International Monetary Fund, who sees Brazil “moving into positive territory as opposed to this contraction”.
Nevertheless, the task of putting Brazil back on its feet will not be simple, warned Augusto de la Torre, Latin America chief economist at the World Bank. “From a technical point of view, the adjustment process is more complicated in Brazil [than in the rest of the region].
Fiscal and monetary policies are closely linked in Brazil,” he told EM. “If the fiscal adjustment is really credible, it is possible that interest rates go down automatically,” he said.