By Enrico Ponzone
In his keynote speech at the London stock Exchange attended by EUBrasil (13/05), Mr Levy made an unusual comment for a Brazilian Finance minister: addressing a crowded room of investors, he pointed at “a Brazilian new thrust in global trade through measures of trade facilitation with our EU partners” and also mentioned the “need to reduce the costs of compliance”, remarks which will no doubt raise expectations in Brussels where the lack of progress in the Mercosur negotiations was recently reiterated by a senior official of the European External Action Service.
These remarks are unusual in that they were not made by the minister of Trade or Agriculture, a key export to the EU, but by the key minister in this second Rousseff administration. Moreover, this was not the usual target audience for such remarks.
Steering Brazil through the storm
Joaquim Levy also said he expected a “turnaround in business sentiment in the next few months”. Much of his arguments for convincing the audience rested on his ability to enforce a stringent fiscal discipline. This, he said, would lead to rising investments, attracted by “the reduction of aggregate risk releasing room for private risk”. Much of his action relies on reversing tax breaks as well as spending cuts “we will not increase taxes but reduce existing tax breaks”.
Mr Levy went on to stress the need to increase productivity, clearly recognizing the Achille’s heel of Brazilian competitiveness but added this was necessary to “sustain wage growth”.
On the controversial use of BNDES funds to finance growth he seemed to signal a welcome change in policy by stressing that “the focus will now be more on originating new business rather than financing existing activities”.
Mr Levy then said he expects the Central Bank to keep inflationary pressures in check through further rises in interest rates. One of the conference participants later stressed that the key objective of this government is at least to preserve the country’s investment grade debt rating (recently confirmed at the lowest BBB level).
While Joaquim Levy seemed optimistic that the results of all these efforts should be visible by the summer of 2016, in time for the Rio Olympics, the markets could be forgiven for their skepticism: Mr Levy failed to engage the audience with a Q&A session and promptly left to take his message to Lloyds, leaving the crowded room wondering whether he will ever manage to deliver on his promises in such a short time and with such a reluctant set of colleagues in government.
Enrico Ponzone is Head of European Affairs at EUBrasil– economist and financial market analyst.