Download Structural Reforms in Brazil

Brazil Towards a Sustainable Growth Path:
Stabilization and Consolidation of
Structural Reforms
Armínio Fraga
January 2001
1
Overview
1. Recent Developments
2. Longview I: Macro Reforms
3. Longview II: Structural and Micro Reforms
4. Growth Prospects
2
1. Recent Developments
3
Recent Developments
• Progress in the structural fiscal reform
• Inflation stabilization
• Floating foreign exchange regime
• Balance of payments improvement
• Economic growth recovery
4
Fiscal Performance
16
Public Sector
14
12
% GDP
10
8
6
Nominal
Deficit
4
2
0
Primary
Surplus
-2
-4
-6 Jul
Jan
95
96
Jul
Jan
97
Jul
Jan
98
Jul
Jan
99
Jul
Jan
Nov
00
(+) deficit (-) surplus
Flows in 12 months, based on the GDP reviewed on October 2000
5
Consumer Prices
IPCA
12-month variation (%)
25
20
15
10
5
0
Jan
96
Jul
Jan
97
Jul
Jan
98
Jul
Jan
99
Jul
Jan
Jul
Nov
00
6
Exchange Rate
2.20
R$/US$
2.00
1.80
1.60
1.40
1.20
Jan
99
Mar
May
Jul
Sep
Nov
Jan
Mar
May
Jul
Sep
Dec
00
7
Current Account and FDI
40
US$ billion
35
30
25
20
15
10
5
0
Jan
Apr
Jul
98
Oct
Jan
Apr
Jul
Jan
99
Current account deficit *
/* (+) deficit
12-month variation data
Oct
Apr
Jul
Nov
00
FDI
8
Exports Quantum and Price Index
105
160
150
100
Price
95
130
120
90
110
85
Quantum
140
100
90
80
80
75
70
Jan
Apr
Jul
98
1996 average = 100
Source: Funcex
Oct
Jan
99
Apr
Price
Jul
Oct
Jan
00
Apr
Jul
Nov
Quantum
9
External Debt / Exports
550
500
450
400
350
300
1995
1996
1997
1998
1999
10
2. Longview I: Macro Reforms
11
Longview I: Macro Reforms
• Structural fiscal reforms
• Inflation targeting / floating exchange rate
12
Structural Fiscal Reforms
• Privatization
• State banks reform
• Public administration reform
• Social security reform
• Fiscal Responsibility Law
• Fiscal Crime Law
13
Medium-Term Fiscal Scenario
Net Public Sector Debt
52
49.68
49.94
49.28
% GDP *
50
47.60
48
46
43.41
44
42
40
1998*
1999*
/* GDP reviewed on October 2000
2000
2001
2002
14
Public Administration Reform
• Efficiency and cost reduction
• Enhanced public services
• Transparency and social control
• Managerial reform: the “Avança Brasil”
15
Social Security Reform
• Private workers mandatory regime
• Public service regime
• Complementary pension regime
16
Social Security
Social Security Balance - Accumulated in 12 months
(R$ billion)
ALT
12
10
8
6
4
/* (+) deficit
Jun 00
Mar 00
Dec 99
Sep 99
Jun 99
Mar 99
Sep 98
Jun 98
Mar 98
Dec 97
0
Dec 98
2
17
Social Security Reform
Private Workers Mandatory Regime
Annual Deficit
1.7
% GDP
1.5
ALT
Previous Scenario
1.3
1.1
Post-reform Scenario
0.9
0.7
1999
2002
2005
2008
2011
2014
2017
2020
18
Inflation Targeting
• Focus on inflation
• Commitment
• Transparency
19
3. Longview II: Structural and
Micro Reforms
20
Longview II: Structural and Micro Reforms
• Education and health
• Global integration
• Privatization / competitiveness / regulation
• Banking reform
• Capital markets reform
• Tax reform
21
Education
Net Ground Schooling Rate
96 %
97 %
93 %
91 %
89 %
86 %
1991
1994
Source: MEC/INEP/SEEC
1996
1997
1998
1999
22
Education
Iliteracy Rate - Brazil 1990-1998
20
19
% of population at 15 or more years of age
18.3
18
17.2
17
16.4
15.6
16
15
14.7
14
14.7
13.8
13
12
1990
1991
1992
1993
1994
1995
1996
1997
1998
23
Source:IPEA, based upon PNAD
Education
System’s Expansion 1995-1999
(enrollment increase %)
Basic education
13 %
High school and
technical education
57 %
College education
28 %
Source: MEC
24
Health
Infant Mortality Rate
(per 1.000 new-born)
47.8
1990
45.2
1991
43.0
1992
41.1
1993
39.6
38.4
37.5
36.7
36.1
1994
1995
1996
1997
1998
25
Evolution of the per capita federal social expenditure
750
Brazil 1980-1998
700
In 1998 R$
650
600
550
500
450
400
350
300
GSF PER CAPITA
AVERAGE GSF PER CAPITA
26
GDP per capita
GDP per capita *
1962 - 1999
In 1999 R$
6.000
5.000
4.000
3.000
2.000
1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 1999
/* GDP reviewed on October 2000
Source: IBGE
27
170
Price variation of the basic basket
vis-a-vis variation of the minimal wage
Brazil 1994-2000
150
In R$
130
Minimal wage
110
90
Basic basket
70
50
28
Source: PROCON/DIEESE
Proportion of the poor and the indigents
over the total population - Brazil 1977-1998
60
51.0
% of total population
50
45.3
42.6
41.7
40
32.7
30
25.0
28.2
20.7
22.1
19.5
20
13.9
10
9.8
0
1977
1980
1983
1986
Indigence Line
Source: PNAD (1977-1998) Preparation: IPEA
1989
1992
1995
1998
Poverty Line
29
Average Import Tariffs
1990
32.2%
1993
16.5%
1997
13.8%
1999
13.8%
30
ISO 9000
6,000
Certificates Issued
5,285
5,000
4,000
3,000
2,000
1,000
0
1990
1991
1992
Source: ABNT (estimated ADTP)
1993
1994
1995
1996
1997
1998
1999
31
Privatization Program
1991 - 2000*
US$ million
Program
Sale Revenue
Debt Transfer
TOTAL
46,724
11,326
58,050
Telecommunications
26,978
2,125
29,103
Other
19,746
9,201
28,947
State Privatizations
26,172
6,592
32,764
Total
72,896
17,918
90,814
Federal Privatizations
*As of 1st March
32
Infrastructure Investments
2000 - 2003
Sector
Total Investment
Private Sector
(US$ billion)
Telecommunications
Energy
Oil
Transportation
Total
45
52
54
23
100 %
86 %
31%
52 %
174
68 %
33
Electric Power Generation
Installed Capacity (GW)
68.0
64.5
61.5
59.2
57.3
55.5
54.1
1994
* estimated
1995
Source: MME
1996
1997
1998
1999
2000*
34
Information Technology
Installed Computers
(millions)
8.3
6.8
5.6
4.0
2.3
1995
* estimated
1996
Source: MME
1997
1998
1999*
35
Information Technology
Internet Users
(millions)
3.4
2.9
1.8
1.4
0.7
0.2
1995
* estimated
1997
Source: MME
Jan 98
Jul 98
Dec 98
1999
36
Telecommunications
Mobile Phones
(millions)
17.5
15.0
9.2
6.0
2.5
0.6
1994
*As of May
1.3
1995
1996
1997
1998
1999
2000*
37
New Regulatory Framework

Regulatory agencies

Competition policy

Consumer protection

Intellectual property rights

Environmental legislation
38
Banking reform

Supervision / regulation

Payments System

Financial liberalization
39
Banking Spread
70
65
% p.y.
60
55
50
45
40
35
30
Jan
98
Apr
Jul
Average banking spread
Oct
Jan
99
Apr
Jul
Oct
Jan
00
Apr
Jul
Nov
40
Capital Markets Reform

Corporate Law

Accounting standards

Regulation
41
4. Growth prospects
42
Summing up
• Openness
Competition
• Deregulation
Investment
• Stabilization
Predictability
• Privatization
Efficiency
43
Growth Accounting
• Labor force growth
1.5%
• Capital accumulation
2.5%
• Productivity (TFP)
1 - 3%
44
Brazil Towards a Sustainable Growth Path:
Stabilization and Consolidation of
Structural Reforms
January 2001
45