"Ethical and political crisis may push economic recovery for 2018"

In a lecture for ETCO advisers, economist Samuel Pessôa talks about the domestic situation and the influences of China, Europe and the United States for Brazil


The economist Samuel Pessôa, head of the Economic Growth Center of the Brazilian Institute of Economics (IBRE / FGV), was one of the speakers at the meeting of the Advisory Council of ETCO-Brazilian Institute of Ethical Competition, on November 27, in Rio. He spoke about the domestic situation, the global economy and the prospects for Brazil in the coming years.

Pessôa is a graduate professor in economics at Fundação Getulio Vargas in Rio de Janeiro (EPGE / FGV) and a columnist for the newspaper FSP. After the meeting, he talked to ETCO in Action. Check out the main parts of the interview.

ETCO - What is the origin of the challenging economic scenario faced by the country today?

Samuel Pessôa - The current crisis has an ancient origin. The process of continuous increase in Union spending, since the 90s, does not correspond to the reality of the country and should have already been reviewed. For many years, the increase in public spending has exceeded the growth of GDP (Gross Domestic Product) and this has always been financed by the exorbitant increase in the country's revenues. Until 2008, this model of increased public spending was sustained and the country had a surplus of 3,5 , 2010%. However, in mid-2014, revenue growth began to decline, but spending continued to grow exponentially. In 0,6, we already had a deficit of 1% and this year the index should rise to 2014%. Due to the structural problem in the country, which spends more than it collects, there was an investment stampede. Since the first quarter of XNUMX, investments in Brazil began to decline and the trend is that, at least until the third quarter of next year, this continues to happen. Hence the challenging scenario we are experiencing.

ETCO - Did the political problems observed in the country help to worsen the economic scenario?

Samuel Pessôa - Public spending grows steeply and economic growth is low. Finance Minister Joaquim Levy signaled the necessary adjustments to change the economic scenario, but it was clear that he will not be able to put the measures into practice due to political problems. This generated a breach of investor confidence and Brazil's rating was downgraded. One of the world's largest risk agencies no longer indicates Brazil as a safe place to invest and the others are expected to do the same soon. So, yes, political problems and party imbroglios mean that the necessary measures are not taken and the situation remains static. The Central Bank is unable to lower interest rates, inflation rises and investors lose confidence. We are in a swamp.

ETCO - What can be done to make the economy signal a recovery?

Samuel Pessôa - The recipe is not simple and will not please everyone. But we are talking about the need for new sources of revenue, that is, more taxes. In addition, we need structural reforms, as in Social Security, so that fixed expenses are reduced.

ETCO - Should these changes happen in the short term? When should the scenario be more favorable?

Samuel Pessôa - We run into the political issue again. The problems are not umbilical to President Dilma Rousseff, however they are personified and the base of her government has no strength to approve the necessary measures. The ethical and political crisis is getting in the way and this is delaying recovery. Perhaps the real changes will only happen in a new government, either in 2018, as new elections, or before, if there is greater wear and tear and the president does not reach the end of the term. It is important to emphasize that it is not just the president, but the reform in the parliamentary base so that the changes are implemented. In the meantime, we will experience more unemployment, higher inflation and an increasingly high deficit in primary accounts.

ETCO - How can the economic situation in the United States affect the Brazilian market?

Samuel Pessôa - The United States is ending the cycle of its worst economic phase. The growth of the GDP, of 2,2%, shows that the country is taking advantage of its potential and indices such as the recurring fall in unemployment prove that the worst for them has passed. Their inflation is low and the interest rate of the Federal Reserve (American central bank) is close to zero. Their stability is positive for Brazil, since they are large importers and help to mitigate the losses of the local industry, especially with the appreciation of the American currency against the real. However, there is a sign for us to be alert, which is the possible increase in their interest rate starting in 2016. This process can withdraw investment from Brazil and this can pressure our exchange rate and inflation.

ETCO - How can the situation of the European economy affect business in Brazil?

Samuel Pessôa - Europe has a more neutral stake in our economy compared to the United States. After 2009, the European periphery, which includes Portugal, Spain, Ireland and Greece, was unable to get rid of fiscal problems and ended up preventing a better potential in the region. Even so, Europe grows an average of 1,5% per year and everything suggests that it will be able to stabilize. Although quite incipient, it is already possible to see a small drop in unemployment in the region. For Brazil, the reestablishment of the region is positive, as it precludes the possibility of a sudden commercial disruption.

ETCO - And how does China's slowdown affect our economic scenario?

Samuel Pessôa - I have an optimistic outlook on China, although growth has slowed. I don't think the numbers are catastrophic, on the contrary, we are talking about an average growth of 5,5% or 6% per year, while the population increases by 0,5% per year. In other words, per capita income growth still exceeds 5% per year and far exceeds the United States, where this rate is around 1%. There is still Chinese demand for our commodities and that will be guaranteed for a long time.




Underground Economy Index dramatically slows down in 2014

Underground Economy Index 2014Disclosed on November 12, the share of the underground economy in GDP, measured by the ETCO's Underground Economy Index (IES) in conjunction with the Brazilian Institute of Economics of the Getúlio Vargas Foundation (FGV / IBRE), should reach 16,2% in 2014. The result represents a decrease of 0,1 percentage point in comparison with 2013 and indicates a tendency towards a slower pace in reducing informality.

In absolute values, the estimate is that the underground economy - the production of goods and services not reported to the government, which is outside the national GDP - exceeds the R $ 830 billion mark in 2014.

In the evaluation of FGV / IBRE researcher, Fernando de Holanda Barbosa Filho, the result was directly impacted by the low growth of the economy in the year. “The economy is slowing down, as well as credit, and employment has grown little. This has a direct impact on formal work, which naturally falls, giving way to informality ”, he explains. According to him, not even the tax exemption policy applied in 2013, which now becomes definitive, was sufficient to face the low economic performance and maintain the downward pace of the underground economy. "However, were it not for the exemptions, we could have an even more severe picture", analyzes the researcher.

For him, even the implementation of MP 615/13, which extends exemptions for new activities, should not change the scenario much from now on, “because the relief of the tax burden has already reached most sectors and its effects have already been captured” .

For ETCO's Executive President, Evandro Guimarães, “there is no denying the importance of exemptions for the economy as a whole, but, as far as we can see, their effectiveness with regard to formalization, tends to stabilize”. According to him, these measures should be analyzed from a more lasting perspective. "It is the moment to carry out the long-awaited tax simplification, so that the tax relief reaches more broadly the productive sectors of the economy".

What is certain is that informality brings direct losses to society, creates an environment of transgression, stimulates opportunistic economic behavior, with a drop in the quality of investment and a reduction in the growth potential of the Brazilian economy. In addition, it causes a reduction in government resources for social programs and investments in infrastructure.

Growth requires facing culture of transgressions

Source: ETCO Magazine, No 18, January 2011

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It took 16 years to put the Brazilian economy on the path of monetary stability and improve income distribution. Now, when going up the ramp of the Planalto Palace, President Dilma has a great challenge ahead: to drop interest rates on financial investments to start a cycle of strong sustainable growth. After all, this is the stone on the road to strengthening economic activity and there is a great expectation that finally the cost of money will be at healthier levels, which will increase the demand for resources for long-term investments in the production of goods and services. services.

ETCO wants to contribute to the debate and considers it extremely relevant to put on the agenda of this new government the confrontation with the culture of transgressions to provide a good business environment, a fundamental pillar for the reduction

interest rates and to attract productive and non-productive investments
speculative. “The good business environment is strongly threatened by misconduct, such as tax evasion, informality, smuggling, piracy and other deviations that generate competition imbalances”, says ETCO President, professor André Franco Montoro Filho.

Think of a great Brazilian author. Hardly your work will not bring in
sometime a character that circulates free, light and loose in society at different times, a good people, but a violator of laws. What is worrying, however, is that this unreliable type that wanders the pages of great national works also circulates through the streets of this immense country, and with such naturalness that we often find it hard to believe that he is actually doing something wrong. Deviations in conduct are impregnated in Brazilian culture, such as Carnival and football, and often enter the family's routine without
the less they realize.

Take, for example, the good square Antunes Segada Bustamante, who with his good conversation gets a job as a government inspector. The character created by Lima Barreto in A game inspector, does not feel ashamed or hide his unorthodox behavior at work. On the contrary, it even boasts. The narrator tells us that a few days after Bustamante's appointment, he found him and, after greeting, asked:

How have you got on with the place?
Magnificently! I eat supper every night, see beautiful women and drink champagne all the way. All of this for free. It is not good? Bustamante is not alone either in fiction or in Brazilian reality. Even those who are indignant about some violations of the law, are condescending to others that do not stand out when
they themselves commit their sins.

In 2008, the culture of transgressions in Brazil was the subject of a thorough investigation by ETCO in partnership with the Fernando Henrique Cardoso Institute. The institute asked four renowned thinkers to answer, within their specialties: "Is overcoming this culture a condition for development?" Yes, answered the scholars who were gathered at the seminar “Culture of Transgressions - Lessons from History”, held in August
2008, on the 200th anniversary of the arrival of the Royal Family in Brazil. It was the starting point for debates and studies and the launch of the book Culture of transgressions in Brazil - Lessons from history, edited in partnership with the Fernando Henrique Cardoso Institute, which investigates the origin of practices that escape the sense of responsibility.

ETCO thus built a collection that is one of the rare sources of
information on the topic of transgressions, which has received little reflection from the country. The book was coordinated by ex-minister Marcílio Marques Moreira, President of the ETCO Advisory Council, and by ex-President Fernando Henrique Cardoso and brings a good overview of the various facets that shape transgressions, with the concern of trying to trace along the history of the country the origin and evolution of practices that escape the sense of responsibility.

The political and social scientists who were involved in this
ETCO's endeavor to create the necessary conditions for efficient therapies to appear to combat the culture of transgressions are certain that, although deviations in conduct have crossed centuries, it is possible to turn that game around. Creating norms and laws is not a problem for the Brazilian, it is not by chance that jurists and lawyers dominated the political elite during the entire period of national formation in the Empire and continue to exercise great influence until today. The difficult thing is to make sure that they are fulfilled.

Brazil is a major exporter of laws. Its Penal Code of 1830, for
example, it was copied by several countries, including Europeans. However, its biggest challenge is still the care in applying the laws. Laws are unceremoniously created. The 1988 Constitution itself, with 250 articles, 83 transitional provisions, was modified by dozens of amendments. The 1997 National Traffic Code is another good example. With his 341 articles he is exhaustive in defining rules and establishing punishments, generous in creating bureaucracies. However, it does not take account of law enforcement. It did not provide for the reform and signaling of roads, the training of highway police, agreements with the states, speeding up the judgment of resources.

“Delusional legalism”, was defined by the historian José Murilo de
Carvalho the heavy Code. A flurry of articles that proved unable to prevent the killing in traffic, as anthropologist Roberto DaMatta demonstrated. According to him, traffic is a good example of how some institutions and people can undertake the crossing to the other side of morality, without anything happening to them. On the contrary, this passage would be something established, expected and encouraged by society itself.

Political scientist Bolívar Lamounier seeks to elucidate the relationship
between transgression and the market economy, but calls into question the role of the middle class as an agent for revising values ​​and political support that can put a brake on the escalation of transgression. "I am convinced that the increase in transgression in Brazil is an inevitable correspondent of the modernization process is the downside of a good currency: the price you pay for a dynamic, modern and democratic society."

Jurist Joaquim Falcão, who completed the list of scholars called by ETCO to radiograph the culture of transgressions in Brazil and its impact on the good business environment, drew attention to the euphemisms. "Economists call informal employment what, in fact, is illegal employment," says Falcão. There are tens of millions of workers excluded from legislation, control and social security and labor benefits. “Which democratic state of law resists this situation? What legitimacy will there be in laws that potentially outlaw millions of Brazilians on a daily basis ”, asks Falcão.

When ETCO started its investigation into the culture of transgressions,
promoting debates and studies from 2008, Brazil was in full swing, with a real euphoria in the financial markets and big bets for economic growth. But then came the greatest crisis of the century, triggered by American mortgages that swept across the planet. Brazil was not immune to the effects of the crisis.

The sharp drop in economic activity was the fuel that fueled, for example, the increase in notebook smuggling in the country. Along with the fear of unemployment and loss of income for companies and individuals, ethical behavior has been seriously shaken. At such times, there is a growing temptation to adopt illegal practices, such as evading taxes, hiring employees without a formal contract, not respecting contracts or consuming products of dubious origin.

Brazil managed to combat the crisis, showing that the countercyclical action,
with tax relief it has the power to oil the economic gear.

It ended the decade with very encouraging macroeconomic numbers. However, the set of good news is not enough to strengthen the country. “The economy is doing well, but the rest is not”, summarized former President Fernando Henrique Cardoso, during the launch of the book Cultura das transgressões - Visões do presente, a new edition of the collection of reflections by the intellectuals gathered by the ETCO Institute and that two years have prepared studies and debates on the topic. The book puts into question the role of a slow Justice that allows to postpone decisions in the culture of impunity and as a sower of corruption.

This second book is part of the collection being created by ETCO as a bibliographic source for the study of the culture of transgressions in Brazil.

In the first book, a compilation of texts with the lessons of history, in this second a map of the current situation and in the third volume what awaits us tomorrow, its risks and challenges. With this trilogy of the Culture of Transgressions, ETCO delivers to Brazilian society a compendium of the main scholars on the Culture of Transgressions in the world.

For Ambassador Marcílio Marques Moreira, it is necessary to maintain constant vigilance in the defense of ethical content in government and business actions.

"The process of building a reputation is long and painful, but the process of deconstruction may be short," says the ambassador. Ethics presumes choice of values. It is not imposed. Regardless of laws. But it is fundamental for the strengthening of democracy, which is based on trust in institutions.

André Montoro says that impunity, the result of a slow Justice and that
it allows postponing decisions, it favors corruption. The book poses this discussion and opens the way for critical reflection, which helps us to find ways to strengthen trust in people and institutions. Thus, even in these almost two decades of great economic advances, President Dilma Rousseff receives from her predecessor a country with a deeply dichotomous reality: the country operates in a sophisticated and advanced system in some aspects, but in others it is still subordinated to institutional systems heavy and backward.

Between one and the other, a society that benefits from progress
economy while trying to legally survive the leaps by jumping from branch to branch.

Deindustrialization divides the country

Correio Braziliense - 28/12/2010

By André Franco Montoro Filho

The issues related to a possible process of deindustrialization of the Brazilian economy and the need for public policies to protect national industry have a much broader popular dimension than is usually recognized. This amplitude is clear when analyzing, from the perspective of the industrialization stage, the map of the distribution of votes between the federal states of the second round of the last presidential elections.

There was a point in the speeches of the candidates for the Presidency of the Republic that most analysts did not emphasize, but that, in my opinion, the population privileged, which is the appreciation of the real against the dollar and the risk that this exchange rate appreciation will lead to a deindustrialization of the Brazilian economy. It is the danger of premature destruction of traditional industrial sectors, in line with the well-known Dutch disease. With a highly valued exchange rate, the national industry would not be able to compete with imported products, be they American or Chinese. This concern, despite not having political party color, was evident in Serra's speech, but not in Dilma's. In fact, it is shared by economists from different backgrounds, including participants from the federal government, but especially those linked to Unicamp, FGV / SP and Fiesp such as Bresser Pereira, Luciano Coutinho, Guido Mantega and others.

Looking at the map of the distribution of votes between states, it appears that Serra won exactly in the most industrialized countries (São Paulo and states in the South Region), where the valued exchange rate is a major threat to the survival of the local industry, and in exporting states in the Midwest.

For its part, if the appreciated exchange rate is a problem for some, it generates benefits for others, because the appreciation of the exchange rate increases the Brazilian real wage. The purchasing power in relation to goods that are quoted, directly or indirectly, in dollars, increases. These goods are, in reais, cheaper, which stimulates consumption. Somehow, Dilma and her patron, President Lula, identified with this increase in wages and the consequent increase in consumption. The vote distribution map shows Dilma's victory in Rio de Janeiro, Minas Gerais and the states of the North and Northeast. These are states in which the threat of deindustrialization is less present, but the benefits of the strong real for increased consumption are clearly perceived and enjoyed by the population.

And the future? Will we continue to worsen this division or are there ways, if not to resolve, at least to mitigate this dichotomy? First of all, it should be noted that pressures for the dollar's devaluation are global, affecting almost all countries, and are expected to remain in the coming years. Second, the double and contradictory effect of this devaluation, that is, the increase in real wages and the loss of competitiveness in domestic industrial production are part of the nature of the process.

Without having the illusion of resolving the inevitable conflict between more and less industrialized states, there are public policies that can act to increase the competitiveness of national production without threatening wage gains and increasing consumption in less industrialized regions. With these policies, it becomes possible, at least, to reduce the negative effects of the dollar's devaluation on the domestic industry. Among these policies, surprising as it may seem, the fight against bureaucracy stands out.

In fact, the Doing Business 2011 report, recently published by the World Bank, informs that it has become even more difficult to do (honest) business in Brazil. It also indicates that Brazil is a world leader in demanding administrative procedures and bureaucratic acts. And this bureaucracy is especially perverse when it comes to paying taxes and starting (and closing) companies. These difficulties, many of them unnecessary, in addition to adding high expenses for companies located in Brazil, decrease their agility and reduce their competitiveness. In order to face the negative impact of the devaluation of the dollar, the fight against bureaucracy may prove to be a creative response to defend the national industry. Debureaucratization has a great advantage over other possible protectionist measures: it does not generate financial costs for the government.

André Franco Montoro Filho - Ph. D in economics from Yale University is a full professor at FEA / USP and president of the Brazilian Institute of Competitive Ethics (Etco)

External agents improve perception about economy

Source: Época Negócios - São Paulo / SP - 21/10/2010

The Institute for Applied Economic Research (Ipea) today released the results of the October International Monitor of Perception of Brazil (MPI-BR) survey. The results show that, this month, international agents with operations or representation in the country improved their perception regarding the future of the Brazilian economy and the social scenario, when compared to the results of July, when the first official edition of the survey was released.

On the other hand, in these three months, the perception of the consulted agents in relation to the political-institutional scenario worsened, with worsening mainly of the perception regarding the country's legal security situation. The collection of information was carried out by Ipea in the period between 5 and 20 of October.

In the elaboration of the research, about 170 entities were consulted, including representatives of governments (embassies and consulates), chambers of commerce, companies with foreign control and multilateral organizations, with guaranteed confidentiality given by Ipea. In the survey released today, the score for questions on economics reached 27 points, against 24 points in July. Society questions scored 15 points, compared to seven points in the previous survey. The answers to questions about politics, government and institutions registered 20 points in the MPI-BR released today, compared to 30 points in the previous study.


In this new edition of the survey, the responses of the public consulted regarding the performance of the Gross Domestic Product (GDP) in the next 12 months reached 59 points (the same score as the previous survey). This is a prospect that is classified as moderately optimistic. The stake of the consulted agents is that the GDP will grow between 3,6% and 6% in the next 12 months. In contrast, an average of zero points (13 points in the previous survey) was obtained for responses involving perspectives on the evolution of the quality of transport infrastructure in the last 12 months.

In the institutional scenario, the worst result was found in the question about the situation of legal security in Brazil, with 14 negative points in the responses given by international agents (there were four negative points in the previous survey). In other words, in the area of ​​legal security, the assessment of international agents within the range considered to be moderately pessimistic or unfavorable worsened. Conversely, within the set of social questions, the average number of responses regarding the outlook for the next 43 months on the population living in conditions of poverty reached 32 points (front 12 in the previous survey).


The scale developed by Ipea ranges from 100 negative points, for very pessimistic or very unfavorable responses, to 100 positive points, for very optimistic or favorable responses. Responses that are in the range between 20 and 60 points on the scale developed by Ipea are classified as “moderately optimistic or favorable”. Results between zero and 20 points mean merely “neutral” responses. Because the society indicators scored 15 points, denoting the cautious understanding that international entities have regarding the future in this sector.

The survey is conducted every three months, involving a questionnaire with 15 objective questions. There are six questions about economics, six questions about politics, government and institutions and three questions about society. Each answer receives an individual score. Thus, for each of the 15 questions in the questionnaire, a partial calculation is performed, using the average of the points. Finally, the questions are counted for each of the three main thematic indexes, involving the economic, political-institutional and social dimensions, allowing the achievement of the final scores.

In this latest survey, Ipea informs that MPI-BR is a qualitative survey that aims to translate the evaluation of international entities that operate or have representation in Brazil on the country's economic, social, political and institutional scenario. The study released today was the second official edition of MPI-BR. The first edition was presented in July, although Ipea conducted a pilot survey in January.