SPEECH OF BRAZILIAN AMBASSADOR @ 14th Brazil Seminar

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EXCERPTS FROM SPEECH OF H.E. MR. PIRAGIBE DOS SANTOS TARAGÔ BRAZILIAN AMBASSADOR TO THE NETHERLANDS DUTCHAM 14th Technical Brazil Seminar – Amstelveen.

Dear members of the Chamber,
Ladies and Gentlemen,

2016 can hardly be considered a typical year for Brazil. There was the impeachment of president Rousseff. We have witnessed a profound and ominous cascading of lawsuits on corruption involving top Brazilian politicians, as well as CEOs of major corporations. Petrobrás, a lodestar of the Brazilian state companies, has undergone deep restructuring including asset selling, cuts in production and in its investment plans. The economy, for the second year running, saw negative growth plunging the country in the most extended recession since the 1930s. Low growth of the world economy has damped Brazilian exports. And strenuous financial efforts had to be made in order to put together a successful Olympic Games in Rio.

Following numerous street demonstrations in the major cities, the Brazilian people’s anger, frustration, disappointment and inconformity with the corruption scandals and with the downturn in the economic outlook found their way in the impeachment process of the president Rousseff. Though carrying heavy political overtones, the process was conducted according to the Brazilian Federal Constitution and Law, and under the oversight of the Supreme Court. After deliberations initiated at the Chamber of Deputies, the Senate pronounced the verdict against the continuation of the president’s mandate on the basis that she had tampered with the Fiscal Responsibility and Budgetary Laws, violations of which were deemed to justify the impeachment.

More than two years of legal proceedings on the corruption scandals have had the major effect of, if not ridding altogether, at least inhibiting illicit appropriation of public money in government and state corporations’ procurements. Admittedly, this has only been possible because more stringent laws and enforcement measures have been put in place during the previous government. The Brazilian people hope that new anti-graft measures continue to be applied, with the same vigor and determination, in order to discourage and punish possible re-emergence of corrupt practices.

The crisis, inevitably, has led to a political and economic re-orientation. The political pendulum has moved to the center-right and the focus of the economic policies has shifted to fiscal adjustment and correction of the major structural distortions in public spending, which, if left untouched, would result in growing fiscal deficits with systemic risks.

Clearly, the new government cannot afford to delay corrective measures, in spite of the persistence of unfavorable world growth rates. Having the main political obstacle – the impeachment – been set aside, it expects to count now with a comfortable margin of support in Congress to approve the main bills designed to redress those structural deficiencies.

Most noticeable is the so-called the ‘Spending PEC’, or an amendment to the Constitution setting up a ceiling, based on the inflation rate, for overall government expenditures. According to the new finance minister, Henrique Meirelles, such an adjustment would restore, in the long run, equilibrium in public accounts and give renewed confidence to market operators to invest in the country.

The gross public debt has grown from 66,5% of the GDP, last December, to 69,5% last July. But, if the fiscal adjustment draft bills and reforms in the public sector receive Congressional approval before the year’s end, a reversal in the trend of growth of public debt is to be expected in the medium and long term.

The new government does not have the luxury to postpone critical decisions to recover an economy, which is in recession, lest it runs the risk of losing the elections in 2018.

Current signs gathered in the Brazilian economy point to somewhat mixed results.

The gross domestic product continues to show negative growth. It has decreased 0,6% in the second quarter of the year over the first quarter, though many analysts believe that it has bottomed out. The tendency now is of incremental growth, on the back of positive signs on the side of investments and industrial production (+ 0,3% in June). Investment in capital goods have shown small improvement in the second quarter of the year, + 0,4% over the first quarter.

This year, agriculture has been a big disappointment. Crops have been affected by drought in the country’s main producing regions in the Center-West and South-East. Farming output in 2016 will be smaller than last year. The country shall harvest 187 million tons of grains as compared to 207 million obtained in 2015.

The jobless rate, at 11,5% of the workforce, is the highest in many years. This has had a dampening effect on wages and consumption by households, thus delaying the moment in which the domestic market will resume growth.

The official inflation rate (IPCA) has stubbornly remained high. At the end of August last, it reached 8,9% on a year-on-year basis, practically the same as in August of last year. Monetary authorities, however, believe that it can come down to about 7,5% at the end of the year, though still above the ceiling of 6,5% set up by the inflation target policy.

Though exports have fallen, trade is deemed to be on the bright side. An exceptional surplus of US$ 33,8 billion has been registered for the year up to the second week of September. Estimates point to a total surplus of US$ 50 billion at the end of the year.

Brazil’s foreign exchange reserves at a US$ 370 billion give it a comfortable cushion against possible external shocks.

Foreign Direct Investment should reach around US$ 65 billion at the end of 2016, same result as in 2015.

The index of the São Paulo stock exchange, a thermometer of the market expectations, has shown an increase of 33% in the value of transactions in the current year since January.

A word on our bilateral relations. They are deemed to be in good standing. We were pleased to see that the Dutch government (and for that matter, all governments in Europe) has taken a cautious approach during the critical moments of the impeachment process, displaying confidence that Brazil would find a way out of its political problems by democratic means and in accordance with its Constitution.

We believe that Brazil remains in the radar of the Dutch government as a promising partner in many areas, such as trade and investment, science, technology and innovation, education, logistics, and many others. Naturally, the recession in my country and low growth in Europe have adversely affected the intensity of our bilateral relations that had taken an impressive boost in 2012 after the visit of then prince Willem-Alexander. As conditions gradually improve in Brazil, we trust that our bilateral relations will regain momentum.

Today Brazil’s focus lies on re-energizing the negotiations for a free trade agreement between Mercosul and the European Union. A meeting of trade negotiators is scheduled to take place in October for a review on the exchange of offers in preparation for a final deal, if everything goes well, next year. We are counting on the support of the Dutch government to make those negotiations move forward.

Finally, I am pleased to let you know that we shall have again in early November next a new edition of the Brazil Network Day, for which all of you are invited. This year we shall have the participation of trade and government representatives of the State of Goiás, which will showcase the many business opportunities that thriving state of Brazil has to offer to the Dutch business community.

Thank you.