Business groups calls for fiscal adjustment and policy continuity

Brazilian businesses wants the new government of Luiz Inácio Lula da Silva (Workers’ Party, PT), reelected on Sunday (25), to present a fiscal adjustment plan that allows for lower interest rates for businesses. At the same time, trade associations backed the continuation of sectoral policies they consider important, such as the national critical minerals policy, the infrastructure concessions agenda, the zero tax rate on the basic food basket, and the end of online betting.

“The investment rate is between 18% and 20% today. That is very high. We need an investment rate that is practically half of that, in the single digits. And the working capital rate would need to be cut by 40% to 50%,” said José Velloso, president of Abimaq, which represents machinery and equipment manufacturers in Brazil.

To get there, he argues that Lula must urgently address the fiscal issue by putting public accounts in order, with measures such as administrative reform and an overhaul of Social Security, as well as a rework of the public budget that tackles lawmakers’ earmarked amendments.

The path the government will take on fiscal policy is in question. Decoupling health spending from tax revenue, for example, which many economists see as one of the alternatives, is not expected to be implemented in Lula’s fourth term.

“During his campaign, President Lula always defended the public health system, SUS, emphatically. But at the same time, fiscal adjustment is necessary. So raising or cutting the health budget is very complicated. I believe it will be maintained, but the challenge is finding other means,” said Antonio Britto, executive director of the hospital association Anahp, a former governor of Rio Grande do Sul, and a former Social Security minister.

Velloso said the negative market reaction on Monday (26) after the election was expected, since polls had indicated a win by Flávio Bolsonaro (Liberal Party, PL), who was backed by the financial sector, as more likely.

Venilton Tadini, chief executive of Abdib (the Brazilian Association of Infrastructure and Basic Industries), believes the tension in financial markets should settle quickly. “This first symptom is normal, because the banks’ structures are built for this. They set up bets and futures market operations, but it adjusts very quickly, and that doesn’t worry us,” he said, adding that he expects the president-elect’s government to signal adjustments and that maintaining this level of friction with industry and financial markets is untenable.

He said this turbulence should not, for example, affect the various infrastructure auctions scheduled for the end of this year. “Those who will take part are already settled, unless the projects don’t have a well-structured risk-return profile,” he said.

Tadini expects the infrastructure auction agenda to proceed as normal. “We believe in the continuity of the program, which is what has happened since 2017. The ideological baggage about transferring operations to the private sector is gone.”

The Brazilian Photovoltaic Solar Energy Association (Absolar) said in a statement that the main short-term test of the new cycle will be the first two capacity reserve auctions for contracting battery systems, scheduled for Dec. 2 and 4. “The association stresses the importance of defining the funding conditions for the auctions and argues that they should launch a recurring, annual agenda for contracting storage,” it said. Absolar said institutional dialogue and consensus-building will be needed in the coming years.

In the critical minerals sector, Lula’s reelection also points to the maintenance of the National Critical and Strategic Minerals Policy (PNMCE), along the lines in which it had already been under discussion.

The policy, which created a council linked to the Presidency to review corporate transactions considered sensitive to national sovereignty, has until December to be fully regulated, a tight deadline for tying up all the loose ends currently pending.

“Government-linked officials are already trying to speed up some decrees [under the new law], and some will directly affect the critical minerals council, such as which projects will go through the council and which won’t,” said Marisa Cesar, chair of the board of the Critical Minerals Association (AMC), which brings together companies in the supply chain for minerals such as lithium, nickel, graphite, rare earths, and copper.

The detail on which projects would be subject to that scrutiny remains one of the sector’s concerns, and should be clarified as the council is regulated.

A change of government at this moment, she said, could have altered the way the policy had been shaped so far. “Even though Lula had already defined some criteria, Flávio could have changed the design of this policy and this council,” she said.

On the challenges ahead for the PT administration, the association cited lowering interest rates and putting together a multiparty government that can deal with the National Congress, where the PL won the largest caucus in both the Chamber of Deputies and the Federal Senate.

The Brazilian Supermarket Association (Abras) also argued for maintaining policies adopted by the PT administration. Among them, it cited the zero tax rate on the basic food basket under the tax reform, the end of online betting, which increases household debt and cuts into income earmarked for buying food, and the preservation of the new rules for food and meal vouchers under the Workers’ Food Program (PAT).

*By Beth Koike ,  Ludmylla Rocha, Michael Esquer, Taís Hirata and  Vitória Nascimento — São Paulo

Source: Valor International

https://valorinternational.globo.com/