Brazil is back on the development track

ON August 2016, I took office as President of Brazil with the task of facing up to the most severe economic crisis in the history of my country along with its deep social impacts on our people. Faced with this challenge, I put forward a transformation agenda without recourse to populist measures. The agenda comprises the broadest set of structuring reforms for the past 30 years based upon the pillars of fiscal balance, social responsibility and increase in productivity.

The results are already visible. The economic recession in Brazil has been reversed and the Brazilian economy has grown for the last two consecutive quarters. Analysts estimate a 1% growth in GDP in 2017. Annualised inflation, which was about 10% in May 2016, has stood at 2.95% in 2017, which is even below the official target. Purchasing power also improved, with a real increase of more than 6% in wages. The basic interest rate, which stood at 14.25% just one and a half years ago, has been gradually reduced to 7% now, the lowest ever recorded, and bank spread has also dropped substantially. The decrease in the interest rates alone has ensured an additional US$25bil to the public coffers.

Our trade balance has been breaking records: Brazil reached a trade surplus of US$67bil in 2017, an increase of 40% over 2016. Vehicle exports grew by 43% and sales of new vehicles in the domestic market grew by 9%. Grain crops in Brazil are estimated to have reached the historic record of 242 million tonnes in 2017, an increase of 30% over the previous year.

As a reflection of the acceleration of the Brazilian economy, port usage has grown by 5.7% in 2017 and the domestic aviation market also increased by 6.6% in comparison to September 2016.

At this time of uncertainty about possible protectionist measures elsewhere, Brazil, like Malaysia, is engaged with economic openness, reinforced by both countries’ respective regional commitments and the willingness to explore new agreements.

As I pointed out in my speech at the opening of the UN General Assembly, the new Brazil that is emerging from the reforms underway is a country more open to the world, and it is this open attitude that we adopt with each of our partners in our region and beyond.

Recent developments in our economic relations with Malaysia also reflect this upward trend. Brazil is today Malaysia’s main trading partner in Latin America (according to figures from the Department of Statistics Malaysia). According to Brazilian figures, in US dollars, bilateral trade has grown 30% in 2017 over the previous year, making Malaysia Brazil’s main trading partner in Asean, with total transactions amounting to a historic record of US$3.92bil in 2017.

Brazil is Malaysia’s main supplier of iron ore, sugar and cotton, for instance, and it is among the top three suppliers of poultry meat, corn and coffee. Other products that have recorded remarkable growth among Brazilian exports to Malaysia are vehicle chassis, engines and medicines.

On the other hand, our imports from Malaysia have surged 21% as a result of the overall recovery of the Brazilian economy and the rising need for inputs in the manufacturing sector. Electronics, rubber gloves, palm oil and solar cells are up on the Brazilian import list. There is an expectation of further increase of Brazilian imports from Malaysia this year, given the good prospects of a full-fledged recovery.

Bilateral investments are also on the rise. Brazilian companies have created more than 1,600 direct jobs in Malaysia, in sectors such as meat-packing, ore transshipment, electric engines and rubber gloves. Likewise, Malaysian companies are investing in Brazil in fields such as lubricants and monorails. Hopefully, Malaysian companies will make new inroads into the Brazilian market in 2018.

This virtuous cycle lies at the root of the recovery of trust in the Brazilian economy. The Business Confidence Index (Getúlio Vargas Foundation-FGV) peaked at 93 points in the end of 2017, the highest level since July 2014. The Brazil Risk (Emerging Market Bond Index - EMBI) has dropped 544 basis points (Jan 2016) to 222 basis points (Jan 2018), a sharp reduction in the sovereign spread. The IBOVESPA (stock exchange) index has surpassed 79,000 points in January 2018 (a historic record), up from 38,000 points just two years ago. The aggregate FDI data for the first half of 2017 was US$40.3bil (US$78.9bil in 2016). The energy auctions, which were held under a new regulatory model, including those of pre-salt, raised US$7bil. In the energy sector, investments of US$137bil are expected over the next few years, creating up to 500,000 new jobs.

Economic rationality and predictability measures have improved the business environment by means of initiatives such as de-bureaucratisation in the agricultural, services, retail and foreign trade sectors.

Aiming at raising productivity, an employment reform has been passed. Without removing rights, the law was modernised and brought workers from the shadow economy into formal employment.

The success of this agenda has already been reflected in employment recovery, with an increase in the employment rate indexes. According to measurements of the Brazilian Institute of Geography and Statistics (IBGE), in the third quarter of 2017 alone more than 1,061 million jobs were created in Brazil, and from those more than 524,000 people have left the unemployed ranks. Employee real aggregate income rose 3.9% in the third quarter of 2017 in comparison to the same period of 2016.

The reinstatement of fiscal responsibility along with the economic growth has enabled an increase in the resources allocated to social welfare. Social welfare programmes, which had been previously put at risk on account of fiscal collapse, have been recovered in tandem with the ceilings established under the Constitution and thanks to efficiency in public spending. The Bolsa Família (the main cash transfer programme) benefit has been increased by 12.5% (after more than two years without any adjustment) and waiting lists have been extinguished. The Government has gone further and launched the Progredir (Getting ahead) programme, which helps families on benefit to obtain employment and credit, and as such, to achieve autonomy.

The results show that the strategy put forward and implemented by the Government is the right one, as the performance of trade between Brazil and Malaysia corroborates.

We have left the economic crisis behind and are back on the development track. Persuaded that there is no time to waste, I will advance the approval of the reform agenda.

The next step will be the continuity of reforms, which will ensure solvency and survival of the system, in addition to removing privileges. Simplifying tax law, another priority, will increase the competitiveness of our domestic production. With the indispensable support of the National Congress, of workers and the business community, we are putting Brazil back on track.

MICHEL TEMER President Federative Republic of Brazil