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As anticipated the constitutional amendment limiting Brazilian member state expenditure for the next 20 years was passed by the Chamber of Deputies last night. The 366 to 111 margin of approval is a significant victory for the Michel Temer cabinet. It further enhances confidence in the government’s ability to implement needed legislation for fiscal adjustment.
Economic recovery and the country’s credibility in the eyes of investors are the major beneficiaries of such important development. Next in line should be the delicate yet equally crucial issue of social security reform. One thing is for sure: in Brazil the ball is finally rolling again.
(photo credit: diariodonordeste.verdesmares.com.br)
As these lines are written the government of Brazil appears to be taking gradual but positive steps towards the passing of critical legislation at Congress. After all, limiting member State spending will be crucial for restoration of fiscal equilibrium, one of a number of decisive measures to help rescuing the country’s credibility and its attractiveness to investors.
As political leaders negotiate the enactment of remedies unlikely to be too popular, yet nonetheless essential at this stage, experts seem all to point to infrastructure as the leading opportunity for investments. Quoted by Bruna Lencioni of the AméricaEconomia magazine, Eurasia Brasil’s Christopher Gardner anticipates up to US$ 269 billion in infrastructural projects open to PPPs for oil & gas, electricity, telecommunications, transportation, roads & railroads, ports & airports, sanitation, urban mobility and others.
For Zeina Latif of XP Investimentos the backlog is such that Brazil is currently spending less than 2% of its GDP in the maintenance of existing infrastructure alone – against an estimated minimum required of 3% and of the 5% being employed by neighbors Chile and Colombia. The consequent structural deterioration only adds up to the huge demand for all kinds of works in several domains.
Latif maintains that once economic order is reinstated people are bound to regain confidence in the system and at that point raising consumption will become another upward driving factor. She goes on to say that, should the government succeed in its correctional moves, by 2018 the scenario will push the next president in the direction of a more liberal agenda. “The potential is enormous!”, she concludes.
Trouble is far from over though. Unemployment remains excessive and the wheel of change has barely started moving. It will take time for the chain effect to salvage ordinary Brazilians from the deepest of recessions. Until it happens such words from specialists remain eloquent and useful to the cunning listener.
Yesterday entrepreneur João Doria claimed an unprecedented first round win in the elections for São Paulo City Mayor. His victory at Brazil’s largest and richest city came along with a nationwide collapse of the PT Worker’s Party following a long series of corruption scandals during its 13 years in power now exposed.
Whilst those political and legal circumstances set new parameters of transparency and governance, the shift to a liberal business-friendly mentality at the São Paulo City Hall, for instance, also comes with the promise of new opportunities for international players.
The mayor-elect, who had based his municipal campaign on State downsizing and meritocracy in the administration, now anticipates privatization of public assets like the Anhembi exhibition complex and the Interlagos race circuit among others. Doria also hints the elaboration of PPPs in different areas, yet another source of potential interest to investors.
Naturally the effectiveness of the new administration’s policies remains to be seen. The city is huge and complex, so some degree of resistance even to common sense initiatives is not unlikely to materialize. If however the future mayor succeeds in using the force of a colossal 53% straight electoral victory for audacious steps, São Paulo may prove to be the ultimate laboratory for similar well-fated moves across the country in the next few years.
