What Haddad and Marina Silva said in Davos about Brazil

Brazil’s participation in the World Economic Forum in Davos, Switzerland, is not limited to presenting what the government of Luiz Inácio Lula da Silva (PT) intends to do to attract foreign investment. The event highlighted the concern of foreign investors with recent political events.

The demonstration that ended with the depredation of the headquarters of the Three Powers in Brasília on the 8th was part of the panel “Brazil: A new roadmap” (“Brazil: a new road map”), held on the morning of this Tuesday (17th) with the participation of the ministers of Finance, Fernando Haddad, and of the Environment and Climate Change, Marina Silva. The events were the first topic addressed by the meeting’s mediator, the head of the Forum’s Regional Agenda in Latin America, Marisol Argueta de Barillas.

In the panel, lasting approximately 45 minutes, Haddad and Marina exposed the economic and environmental program that Lula intends to implement in this new presidential term. A good part of the measures on the economic agenda, such as tax reform and other fiscal adjustments, will have to undergo discussions in Congress with a strong opposition, classified as “extreme right” by Haddad.

“Not only did she organize herself and win the 2018 elections, but she governed for four years with total freedom to approve whatever she wanted in Congress, and she will undoubtedly be the opposition force to Lula, I have no doubt,” he said. the minister.

Marina Silva spoke of work to “stabilize democracy” to carry out the measures intended by the president. “Democratic stability depends on our ability to respond”, said the minister, stating that state institutions responded to the attacks in Brasília less than 24 hours later.

Haddad and Marina criticized the management of former President Jair Bolsonaro (PL) in the economy – mainly – and in the environment. Haddad said he had taken over a ministry with a “tremendous imbalance in our accounts that needs to be resolved”. He classified the measures adopted by Bolsonaro in the second half of 2022 as “socially acceptable”, but of an electoral nature, and said that they caused a serious fiscal problem.

Haddad omitted, however, that much of the uncertainty about public accounts came from the proposed amendment to the Constitution (PEC) articulated by the new government to allow expenditures of approximately R$ 170 billion above the spending ceiling, the country’s main fiscal anchor.

Already approved, the ceiling-breaking PEC – which foresees the presentation of a new fiscal rule by the end of August – caused a strong oscillation in the prices of assets such as stocks, foreign exchange and government bonds after Lula’s election, and is among the main reasons for the worsening of expectations for the basic interest rate – since Lula’s election, the projection for the Selic at the end of 2023 has risen by more than one percentage point, from 11.25% to 12.50% per year. When the Minister of Finance mentioned the PEC later on, he did not address its fiscal impact; he limited himself to saying that it serves to support the execution of public policies.

“We are inheriting a problem that was caused not by the pandemic, but by the eminent defeat of the previous government in the face of the elections. The previous government, faced with the unfavorable prognosis, took a series of very socially just measures, but absolutely electoral by the way and moment in which they were adopted. And also a waiver of revenue in the order of 1.5% of the Brazilian Gross Domestic Product (GDP)”, quoted Haddad. According to him, the objective of the economic team is to zero the primary deficit in two years and resume the relationship between expenses and revenues at the pre-pandemic level, of 18.7% of GDP at the federal level.

The Minister of Finance stated that this measure will be possible if the current government succeeds in approving the intended tax reform that is already being discussed in Congress, along with a new regulatory plan in areas such as granting credit to the population, reindustrialization aimed at ecological transition and economic integration. regionally with other South American countries – such as Chile, Colombia and Argentina, whose presidents he called “progressive”. According to him, this will make Brazil “return to grow above the world average as it happened in the eight years of President Lula’s government”.

Economic policies to stabilize accounts and attract investment

The approval of the ceiling-breaking PEC right at the start of the new Lula government was not left out of the discussion in Davos, cited by Haddad as necessary to support the old and “new ministries that had no budget” for the execution of public policies. Haddad said that the government intends to carry out the tax reform in two stages later this year.

“The tax reform that we want to return to in the first half (…) is on the consumption tax. But in the second half we want to vote on a tax reform on income. pays taxes. Many people in Brazil today do not pay taxes. So, we need to rebalance the Brazilian tax system to improve income distribution in Brazil”, he said.

The minister also mentioned the fiscal adjustment package that includes measures to reinstate sectors of the economy that, for him, were “irresponsibly favored for electoral purposes last year”. However, this Monday (16), Haddad told journalists that he will not revoke the reduction in the Tax on Industrialized Products (IPI) made by Bolsonaro, “to signal to industries that we want to approve the tax reform”. On the same day, the vice-president and Minister of Development, Geraldo Alckmin, spoke of “doing away with the IPI” in the reform.

Haddad also mentioned debt renegotiation measures so that consumers can have access to credit again; improvements in the system of guarantees – the New Legal Framework for Guarantees, presented by the Bolsonaro government, is stalled in the Senate –; minimum wage increase “slightly above inflation”; regulatory agenda to improve Brazil’s investment environment with public-private partnerships and concessions; among others.

The minister also stated that the regional integration policy pursued by the new government will compensate for the lack of a “commodity boom” like that experienced in Lula’s first two administrations, between 2003 and 2010, when China consumed most of the raw materials. produced by Brazil.

“We are going to have to do it differently now. Since we don’t have the ‘commodities boom’, let’s make an integration ‘boom’ to favor trade, financial transactions, the credit system, integrate all of this for our region to draw the world’s attention and attract investment”, completed.

According to Haddad, Lula’s international agenda is still being set up, but will focus mainly on South American countries, also with a view to preparing for the G20 forum, the group of the 20 largest economies in the world, next year. Currently, Brazil occupies the 12th position in the ranking.

Synergy between economy and environment

Marina Silva stated that the government will seek economic development combined with environmental policies. For her, Lula’s presence at COP27, in Egypt, even before taking office as president, was the first sign of the country’s return to international discussions.

“Our internal commitment is, by 2030, to achieve zero deforestation, to ensure that Brazil can transition from an intensive carbon economy to a low carbon one. The energy transition, low-carbon agriculture, the bioeconomy, with the complete agreement of the Minister of Finance”, said the minister, also mentioning that Brazil wants to lead a global initiative to protect forests, especially in “the most vulnerable countries”.

She stated that the Amazon Fund is being recomposed by the government, also citing more than R$ 500 million for policies to protect the environment, and the withdrawal of donation resources for this purpose from the spending ceiling. Marina also mentioned the importance of the candidacy of the city of Belém to host the COP30 in 2025 as the “materialization” of these environmental protection initiatives.

Which, according to Fernando Haddad, will be the way to “engage foreign business leaders”, which he cites as fundamental. “We have to convince large corporations, as far as the system allows, to assume certain public commitments with practical consequences, in terms of the environment, gender equality, combating racism, sustainability, the new energy matrix, not purchasing products from countries that do not respect human rights,” he added.

In addition to this Tuesday’s (17th) panel discussion, Haddad and Marina have been participating in a series of meetings with leaders and businessmen in Davos, such as meetings with directors of the International Monetary Fund (FM) and Meta, which owns Facebook.

In the morning, the finance minister met with the Saudi investment minister, Al-Fahli; with Mark Malloch Brown and Alexander Soros, respectively chairman and chairman of the board of directors of Open Society, the foundation of investor George Soros; and with Ian Bremmer, president of the consultancy Eurasia.