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File photo of the Brazilian Mercantile and Futures Exchange, or BM&F. The aggregate FDI data for the first semester of 2017 was $40.3 billion. Photo: Bloomberg
File photo of the Brazilian Mercantile and Futures Exchange, or BM&F. The aggregate FDI data for the first semester of 2017 was $40.3 billion. Photo: Bloomberg

Brazil is back on track

Brazil has left the economic crisis behind and is back on the development track

Since I took office as the President of Brazil, I have put forward an agenda that 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 economic recession in Brazil has been reversed and the Brazilian economy has grown for the last two consecutive quarters. Inflation, which was about 10% in May 2016, stands below the inflation target, recorded at 2.54% in September. Purchasing power got better with a real increase of more than 6% in wages. The basic interest rate for May that year was 14.25%, and now stands at 7.5%, the lowest in four years. The decrease in the interest rates alone has ensured an additional $25.5 billion to the public coffers.

Brazil reached a trade surplus of $58.477 billion between January and October. Industrial output increased by 1.6% over the past year. Vehicle exports grew by 55.7% in relation to 2016 and have already reached the 560,000 units produced in 2017 aggregate. Sales of new vehicles in the domestic market grew by 9.28% this year in comparison with 2016. Grain crops in Brazil should reach the historic record of 242 million tonnes in 2017, an increase of 30% in comparison to the last 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.

The Business Confidence Index (Getúlio Vargas Foundation-FGV) peaked at 90.3 points in October, the highest level since July 2014. The Brazil Risk (Emerging Market Bond Index—EMBI) has dropped 544 basis points (January 2016) to 239 basis points (October 2017), a reduction of 56.1% in the sovereign spread. Also the five-year Credit Default Swap, which was at 328 basis points, has come down to 173.5 at the present date. The IBOVESPA index surpassed 76,000 points in September 2017, recovering from 38,000 points at which it stood in January 2016.

The aggregate FDI (foreign direct investment) data for the first semester of 2017 was $40.3 billion ($78.9 billion in 2016). The energy auctions, which were held under the new regulatory model, including those of pre-salt, raised $6.72 billion. Only in the energy sector, investments of $135.72 billion are expected over the next few years, creating up to 500,000 new jobs.

These measures have improved the business environment by means of de-bureaucratization in the agricultural, services, retail and foreign trade sectors.

The State Enterprise Responsibility Law has enabled a professionalization of state enterprises. With losses of $9.8 billion in 2015, they generated profits of $1.4 billion in 2016 and $5.3 billion in the first half of 2017. Aiming at raising productivity, labour legislation was modernized and brought workers into formal employment.

So far this year, 163,000 jobs have been created, in comparison to the loss of 448,000 jobs between January and May 2016. 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.

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" 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.

Boldly, I have released the dormant FGTS (employee-savings guarantee funds) accounts and advanced the PIS-PASEP (social integration and training programmes) withdrawals, which has benefited millions of Brazilians and injected Brazilian real 60 billion into the economy.

The rationalization of healthcare management has redirected $1.22 billion for equipment purchase, opening of new healthcare units and hiring new staff. The “Farmácia Popular" (low-cost pharmacy) programme had been spending 80% of its budget on administrative costs. A new allocation system has increased the resources for the purchase of essential medicines by $30.6 million/year. In the field of education, the high-school/secondary reform has updated the curriculum for the students taking into account individual skills and the realities of the employment market. The student financing fund (FIES) has been reassessed, offering 75,000 new study places and over $214 million were allocated to it. With the launch of the geostationary satellite, a decisive step has been taken towards the universalization of access to broadband internet in Brazil.

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 is the President of the Federative Republic of Brazil.

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