Author: ROBSON BRAGA DE ANDRADE

Source: Gazeta Mercantil, 06/05/2009

May 6, 2009 - Two reports published on the eve of the May 1 holiday are interconnected and show that Brazil still needs to go a long way to reduce the perverse effects of the international crisis on the country's economy and that penalize the whole society. The Industrial Survey survey, released by CNI, recorded in the first quarter of this year a strong decline in the sector's activities, producing results even worse than those of the last quarter of 2008, with dramatic reflexes in production and in the level of employment. The use of the installed capacity of the industry hit 68%, the lowest level of the last ten years.

The second news, equally worrying, came from Copom, which, inverting the trend of its last two meetings, in January and March, reduced the pace of the fall in the Selic rate, cutting it by just 1 percentage point. In an environment of strong slowdown in the productive sector, more substantial Selic cuts are necessary, especially since the inflation rate accumulated in the last 12 months has been on a downward trend (reflecting the crisis, which reduced credit and, consequently, the consumption).

The tax issue is also in the headlines, which shows us, on the one hand, that the tax reform proposal that has been exhaustively discussed in the last two years is stalled in Congress. On the other hand, it indicates that the absurd levels at which our tax burden has reached, the highest for countries in a stage of development similar to that of Brazil, functioning as a brake on production and consumption. In this scenario, boldness and courage are required to break paradigms, facing three fundamental questions: the expansion of the credit supply for the productive sector and also for the individual borrower, who needs it to return more strongly to the consumer market; the reduction of interest and spreads; and, crucially, the exemption from investments in the implementation of new projects and the expansion of existing ones.

The zero priority is to inject credit into the productive sector. Even with all the measures taken by the government, the supply of financial resources, although it registered growth in March, remains timid in relation to the patterns verified in the first quarter of 2008. And, when it exists, it is made impossible by the absurd cost of money. The expectation is that the government will start to use, more strongly, the apparatus of financial institutions that it has and that needs to function as an instrument to induce competition in the entire financial system. Banco do Brasil, Caixa Econômica Federal and BNDES should be used to stimulate the expansion of the credit supply and reduce the cost of money at the tip.

In order to reduce interest and spreads, tax exemptions from PIS and Cofins are imposed, fees that directly affect the financial intermediation process. In fact, taxing financial intermediation is a practice that does not exist almost everywhere in the world for the sole and exclusive reason that it substantially raises the cost of money. It is also necessary to accelerate the approval of Bill No. 5.870, which is being processed by Congress. This project establishes the Positive Registry and, certainly, will have a positive impact on the reduction of spreads, especially if accompanied by measures that lead to greater competition in the banking sector.

It is also necessary to advance tax relief, especially on productive investments: today, in the implementation of new ventures and the expansion of existing ones, taxes represent up to 33% of investments, which often make them unfeasible, aborting projects important for the country and that could contribute to further development and reduction of acute social problems.

President Lula recently declared that interest and high spreads are, for him, an obsession - the biggest of all. The productive sector and the entire Brazilian society certainly agree. And there are others - like the monster of bureaucracy that, acting sneakily behind public offices, undermines the efforts of Brazilian society.

Under normal conditions, agility and simplification of processes are important to guarantee competitiveness to the economy - in times of crisis, they are strategic and vital! An emblematic example is the cipoal into which environmental legislation has become, also the object of a recent outburst by President Lula, which he exemplified with the construction of Brasília. According to Lula, President Juscelino Kubistcheck would still be running after environmental licenses to build the country's capital, if he were undertaking his project these days!

kicker: In an environment of slowdown, deeper cuts are required in the Selic

(Gazeta Mercantil / Caderno A - Page 3) ROBSON BRAGA DE ANDRADE * - President of the Federation of Industries of the State of Minas Gerais (Fiemg). Next article by the author on June 10)