28 INTERVIEW
Hope in the
future
Arno Augustin
Secretary of the Treasury
Kalinka Iaquinto
The Brazilian Economy—Considering the
Treasury Secretary Arno Augustin is
very weak economy, what steps does the
optimistic about Brazil’s fiscal situation. He notes
Treasury plan to take?
that the country’s net debt declined from 60% of
Arno Augustin—We are working with a
GDP in 2002 to 34% last year and state debt fell
from 20% of GDP to 11%. He believes 2015 will be a
recovering economy that grew by 2.3%
year of good growth for the country, the favorable in 2013, a much better result than in 2012.
trend of fiscal indicators will continue, and the Production of capital goods is recovering.
effect of the international crisis will probably be Tax revenue is getting better … . We are
lower. “We are very confident about the fiscal very confident about the fiscal situation
situation for 2014,” he says. He is reassuring, in 2014. The benefits and incentives the
stating that the tax benefits and incentives economy needed to cope with the interna-
necessary because of the international crisis
tional crisis are over with and for the current
are over with and in 2014 there will be no new
year there should be no new benefits and
ones. Also, the Treasury will not be transferring
incentives. This certainly will be reflected
significant resources to BNDES or capitalizing
state-owned banks. Augustin does report that
favorably in tax collections.
the Treasury will provide US$1.7 billion to help
electricity distribution companies withstand the How do you think foreign investors view
effects of increased costs due to the prolonged the government’s policies?
drought. In general, he believes, Brazil can view Foreign investors have seen Brazil very
the future with more confidence. positively; they hold an increasingly larger
April 2014 The Brazilian Economy
INTERVIEW 29
share of domestic debt. This Foreign investors from concessions and
means that they trust [the have seen Brazil very dividends are recurring
government] , and see a positively; they hold revenues; they were treated
country with strong funda- an increasingly larger as primary revenues in
mentals. 2013 and will be so treated
share of domestic in 2014. Dividends rose
A cut in public spending was debt. This means sharply because state-
recently announced. Was it that they … see a owned enterprises today
positive? How do you see country with strong are performing better.
the downgrade by Standard … We have been able
fundamentals.
and Poor’s (S&P)? to increase revenue with
S&P’s decision to change the risk rating lower tax rates and reduced taxes; this is
for Brazil is inconsistent with Brazil’s solid an ideal situation. … The same goes for
fundamentals. S&P itself highlights clearly expenses. The expenses that have grown
Brazil’s many positive points: its solid insti- are education and investments. Fortunately,
tutional structure; the soundness of public those types of investment have a favorable
accounts, both fiscal and external sector; economic effect. This year and next year,
the composition of public debt, which we’ll have stronger participation of private
is almost entirely in local currency and investment from concessions without fiscal
mostly with fixed interest rates or indexed cost to the government. The concessions
to inflation; and a manageable level of net for ports, highways, railways, airports,
external debt. The government reaffirms petroleum, and electric power mean a
its commitment to meet the fiscal primary significant improvement in terms of more
surplus target of 1.9% of GDP this year, investment and better infrastructure, at no
continue with fiscal consolidation, give fiscal cost.
priority to investment, and work for sustain-
able growth. But what about productivity and compet
itiveness?
Some say that we have a structural fiscal The competitiveness of the economy was
problem. What is your view? one of our biggest concerns. … The
The main government expenditures are government promoted the exchange rate
under control and falling. That is the case for devaluation, which in the beginning is not
wages, interest payments, and social security good but in the medium and long term
pensions. Spending on wages and salaries is positive for the economy; a decrease
fell from 4.9% of GDP in 2002 to 4.3% in 2013; in interest rates; and exemptions from
interest on public debt declined from 7.7% payroll taxes that will have a significant
of GDP in 2002 to 5.2% in 2013. The social effect in terms of improving company
security deficit is also diminishing. Revenues competitiveness.
April 2014 The Brazilian Economy
30 INTERVIEW
This year interest rates have The decision of done has been done and
gone up somewhat and the Standard & Poor’s for 2014 there should be
expectation of both the to change the risk no significant transfers to
Central Bank of Brazil and BNDES or capitalization of
rating of Brazil
the U.S. Fed is for higher state-owned banks.
interest rates in 2015. How
is inconsistent
will public debt and the with Brazil’s solid How do the measures in
primary surplus be affected fundamentals. S&P the energy sector affect the
in this scenario? itself highlights public budget?
The main ef fect of U.S. Because the Brazilian elec-
clearly Brazil’s many
interest rate changes on tricity system has been
Brazil’s domestic interest
positive points. suffering from a very severe
rates has already occurred. drought, currently it has
The U.S. increase was intense in 2013. … lower production of hydroelectric power.
From now on we should see some increase This has had a heavy economic impact.
in U.S. rates, but much smaller. For Brazil, …The Treasury will contribute US$1.7
I think the level of the interest rate in general billion and seek funding in the market so
is better. The rate has a tendency to fall and that distribution companies can pay their
that is what will happen. Net public debt commitments until electricity rates are
has fallen from 60% of GDP in 2002 to 34% raised next year.
in 2013.
How does the Treasury contribute to
The National Development Bank (BNDES) the good performance of the Brazilian
has expanded its loans significantly in economy?
recent years. How should it behave in Our role is to work to improve Brazil’s
the future? economic fundamentals. We have to
The BNDES transfers funds from the govern- ensure that the government has solid
ment to the private financial system at medium- and long-term fundamentals;
lower interest rates to support economic better debt management and public
policies. … The government opted to bonds to improve the conditions under
transfer to BNDES significant resources which Brazilian companies borrow funds
to support private investment. The main abroad. We also have to control public
BNDES operation is the Program for Invest- spending and track state finances. Ulti-
ment. The BNDES has significant resources mately, the Treasury does all this fiscal
at its disposal, and we hope that the inter- analysis to build a framework for medium-
national crisis recedes. … What had to be and long-term fiscal sustainability.
April 2014 The Brazilian Economy