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Opinion: A New Phase

08/04/2015 - 09h05

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JOAQUIM LEVY
BRAZIL'S FINANCE MINISTER

The Brazilian economy has been rebalancing. It is responding to the changing terms of trade exchanges and the exhaustion of countercyclical policies and greater exposure of the public sector to financing sectors of the economy.

The realignment of prices and fiscal reorientation took the country away from a route of vulnerability, and private agents have been adjusting. But there is more work to be done to deal with "what is to come after the adjustment."

We have sailed through external and domestic uncertainty. The US recovery had predictable ups and downs. The reinvention of the Chinese economy without exports as the engine of growth, also moves non-linearly.

Both will continue to generate volatility. In addition to the weakness in Europe and the consequences of all this on Latin America, the outlook is not simple.

Domestically, the rain was not, until recently, favorable to the forecast of the economy or the government's popularity.

For the new middle class, facing its first economic cycle was reflected on significant fluctuations in confidence indicators. The development of several judicial investigations have made the private sector scenario less accurate.

Shocks in the short term and the effects of their own conduct of the adjustment cycle should not overshadow the need to continue the structural changes in the economy now that the commodity cycle vanished, something which helped us in the last decade.

The solution to both immediate and future difficulties is not to spend more, because the need for fiscal strengthening is evident within the current context. Nor is it to make room for a persistent inflation.

So what to do?

The closing of a cycle is a time of opportunities and diagnostics for imagining objectives and choosing paths.

First, it is important to remember that we have automatic stabilizers of demand, that may help through the current cycle.

They are robust, given the volume of funds transferred promptly to families by the National Treasury by means of public sector taxation, the Welfare system and numerous other social programs.

Keeping these mechanisms require ongoing assessment of its sustainability and the results obtained.

Given the current tax burden, it is urgent to strengthen the assessment of spending quality, including compulsory spending, whose volume reduces the latitude of the federal, state and city spheres of government to invest in infrastructure.

Second, in order to share with the private sector the responsibility for expansion of infrastructure investment we must have fiscal stability to reduce macroeconomic risks and regulatory surprises.

Third, we must have a commitment to excellence. In the competitive economy in which we live, with decreasing advantage given by natural resources, this commitment will become increasingly vital.

The incentives for public and private agents have to follow that direction-maybe it is the biggest revolution in the design of our policies.

Promoting competition, for example, has the greatest potential in stimulating the economy.

Being clear about these options as well as discipline and transparency to follow them will result in a faster economic recovery, and in the decline in long-term interest rates and a more open Brazil with more opportunities.

A Brazil in which the middle class may exercise their work and creative potential, being imaginative, much more than just beneficiary, of a new standard of living.

A Brazil where freedom of initiative and economic predictability encourage companies to invest in new ideas.

There is no reason why we should fall into the trap of middle-income countries rather than achieve real development for all Brazilians.

There is a very positive growth agenda for the second semester of 2015 which goes beyond the essential fiscal adjustment to support next year's budget.

It makes room for cooperation between different levels of government, such as reforming the VAT tax, crucial for the unlocking of investments, although it should address the concerns of everyone to be able to bring about advantages.

The work is not yet done, but it is a promise of life in our hands.

Translated by CRISTIANE COSTA LIMA

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