Rousseff on Obama’s Economy

From BrazzilMag this story on Rousseff’s approach to the economy, but also her comments about Obama’s political will. Hard to read in parts but it contains a lot of wisdom. The Brazilian approach to maintaining manufacturing capability and taxing high foreign content products would benefit the US, if there were the political will to make it happen. Furthermore, it is not only the Brazilian view, but even the IMF has made the same recommendations for fiscal stimulus–this from a body which has always promoted austerity measures.

Brazilian President Blames US Financial Crisis on Obama’s Lack of Political Will

Sunday, 18 September 2011 13:38

Rousseff receives Obama in Brasília For Dilma Rousseff, the president of Brazil, the financial crisis in the United States, which is contaminating the rest of the world, is more ‘political’ than economic and it’s not only a matter of money, but also and mainly of ‘strong decisions.’

The problem was born in 2008 when the US government went to the rescue of the banks and converted “private debt into public debt,” which at the time was inevitable and helped prevent a major catastrophe.

However now “there is a political objection in the US precisely when there is a need for greater fiscal expenditure, when the US needs a fiscal imitative and not only monetary.”

“The greatest difficulty facing the US currently is the lack of political decision in the sense of sending a strong message of stimuli to investments,” added president Rousseff.

“The problem is not money”, insisted Rousseff who added that ‘depending on circumstances’ she could very well address the issue with her US peer Barack Obama during the coming meeting next week in New York in the framework of the UN General Assembly.

Rousseff added that there is no international solution for this type of problems, not even for the Euro zone, since “it’s up to them to define conditions and to speed up the rescue package.”

As to the possible impact of the global crisis on Brazil, Rousseff said the government would be doing a major effort and achieve a 4% expansion this year.

The Brazilian economy expanded 3.6% in the first quarter of the year, and 0.8% in the second quarter. Rousseff admitted the third quarter should be even slower, but in the last quarter of the year, “there will be a strong resurgence that should allow us to end the year with just over 4% annual growth.”

Higher Taxes on Imported Cars

The Brazilian government has raised a tax on cars with a high content of imported components to protect jobs following a surge in shipments from China and elsewhere that has been fueled by a rally in the currency.

The Finance Minister of Brazil, Guido Mantega, lifted the so-called industrial products tax on carmakers by 30 percentage points, except for those that source 65% of their parts from the Mercosur trade bloc or Mexico. The measure will raise the cost of imported cars by as much as 28% and force foreign automakers to build key components in Brazil, he said.

“These measures are going to stimulate national production and guarantee investment,” Mantega told reporters in Brasilia. “If we don’t do anything, we are going to lose space to imports, and we are not going to permit that.”

Carmakers based in Brazil have been hit by a rally in the real, which has sucked in cheap imports from China and elsewhere. Brazil’s motor industry the world’s fifth-biggest, is dominated by Volkswagen AG, Fiat SpA and General Motors Co. who between them have about two thirds of the market.

Chinese automakers’ market share expanded to 3.29% in August from virtually zero in April 2010, according to the national car dealers’ association Fenabrave. The increase has come at the expense of Fiat, General Motors and Ford Motor Co.

Mantega said the government is worried by the rise in car inventories, and the spare capacity in the industry. Besides the Real hit a 12-year high against the dollar in July, and is up 36% since the start of 2009, as near-zero interest rates in the U.S. and Europe led investors to seek higher returns elsewhere.

Carmakers must meet six of 11 requirements ranging from building of transmissions to the assembly of cars in Brazil in order to avoid the higher tax, Mantega said. The new rules take effect tomorrow and will apply until December 2012, he said.

JAC Motors, Suzuki Motor Corp. and Chery Automobile Co. could reconsider their decision to invest in Brazil due to the rise in the tax, the president of the Brazilian Association of Vehicle Importers José Luis Gandini told reporters in Brasilia.

Brazil’s car industry has also been hit by central bank measures to curb credit growth. Auto loans fell to 8.4 billion Reais (4.9 billion dollars) in July, down 24% from December when the central bank set capital requirements encouraging higher down payments and fewer installments on car purchases.

Since last year, Chinese carmakers Chery, Chongqing Lifan Auto Co. and Anhui Jianghuai Automobile Co.’s JAC Motors have all announced plans to build plants in Brazil.

Cledorvino Belini, president of the National Association of Carmakers and head of Fiat in Brazil, welcomed the measure, saying it would benefit the entire automobile sector. The measure will not raise prices for consumers, since Brazil’s car market is very competitive, Belini told reporters in Brasilia.

Mercosur Growing Pains

The President of Uruguay, José Mujica, admitted to Uruguayan manufacturers and farmers that with recurrent Argentine and Brazilian obstacles to trade “it’s very hard to make Mercosur function” and good relations between presidents “are not enough.”

Weighing carefully his words, Mujica admitted that presidents from Uruguay and Argentina get along very well and discuss bilateral issues in a distended atmosphere, but Uruguayan exporters face growing obstacles when trying to have access to the Argentine market, “and in spite of all the regional agreements.”

Mujica met with the Uruguayan Rural Association (ARU) and in the afternoon with the Industries Chamber. In both cases Argentine policies were present.

Farmers admitted to Mujica they fear a contagion of farm policies applied by President Cristina Fernandez in Argentina and pointed out that the extraordinary development of Uruguayan agriculture in the last decade has been in the framework of serious government policies, reliability and clear and stable rules of the game.

Thus, “the latest initiative promoted by President Mujica to tax landholders with over 2.000 hectares is an only one-time measure, or does it mean the beginning of a shift of policies?” asked farmers.

ARU also indicated that in the last decade many Argentine farmers moved to Uruguay for agriculture and cattle breeding while Brazilians have virtually taken over the rice business and meat industry processing.

“The overall evaluation of the meeting with Mujica was positive” said ARU president Jose Bonica adding that “we shared views on the world crisis, competitiveness, the exchange rate and relations with Argentina and Brazil.”

In the afternoon Mujica and the Minister of Industry Roberto Kreimerman met with the Chamber of Industries and talked about the growing difficulties to access the Argentine market, in spite of Mercosur and other bilateral agreements.

“We have an institutional problem with Mercosur; we have notoriously improved relations between the two presidents (Uruguay and Argentina), but we have this institutional backlog”, admitted President Mujica.

The Uruguayan leader has instructed his cabinet to take special care of relations with Argentina avoiding any statements that can cause political uproar. But every week his office receives complaints regarding conflicts with Argentina on trade, logistics, energy and environmental issues.

Mujica admitted that the good understanding with Cristina Kirchner is not reflected at other levels, precisely where they have to be implemented.

“Problems that crop up are addressed one by one president to president…but this is no way of operating because you can’t depend on the good spirits of two guys that get along well”, confessed Mujica.

“We need Mercosur tribunals and rulings that can make bilateral and regional relations fluid and effective”, Mujica insisted saying that the current situation causes problems to current and future dealings.

“In Mercosur we’re well behind in this area and a very serious problem for the future, because what matters for long term planning are the guarantees of effective operational institutions, and not the good chemistry between two presidents, at a certain period of time.”

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