Letter IEDI n. 1059—Brazil needs an agenda
IEDI President Dan Ioschpe's article, published in the Feb 01, 2021 edition of the newspaper Valor Econômico.
This edition of the Letter IEDI brings an article by its president, Dan Ioschpe, published in today's edition of the newspaper Valor Econômico.
The theme is crucial for us to change the trajectory of the economy, marked in recent years by low dynamism, if not by recession, defining the actions that must be quickly adopted.
The full article follows.
Brazil needs an agenda
The recent news of the end of Ford's productive activities in Brazil has brought into focus the difficulties faced by the Brazilian industry in recent years and the seriousness of the distortions in the economic environment in which the sector operates in the country.
Despite its particular motivations, which are not up to us to evaluate, the decision made by the company, as well as by so many others, is an indication of how far behind Brazil is in terms of competitiveness, productivity and technological sophistication in relation to the rest of the world. And more than that, it reflects the absence of commitment, expressed not only in terms of ideas and intentions but also in concrete decisions, to address without delay the causes of our backwardness. An agenda!
It is becoming increasingly clear that we are at a crossroads, given the profound technological transformations in progress and which are likely to accelerate after the pandemic, with the strengthening of the industrial strategies of the main global powers. Either we definitely face our problems or the loss of industrial skills will accelerate, further compromising the country's economic performance.
The IEDI, which since its foundation seeks to distance itself from the interests of specific sectors and temporary solutions, fostering dialogue on the guidelines necessary for the advancement of our productive structure and the economic and social development of Brazil, has been insisting for some time on a set of topics that should be a priority in the national debate. They are pillars for a more efficient economy, a more just society and a more environmentally responsible country.
It is essential that we continue to pursue macroeconomic balance, despite the additional challenges brought about by the pandemic, in order to reduce exchange rate volatility and escalating inflation, ensuring interest rate levels in line with international standards. The result will be a more vigorous evolution of investments, so necessary for the modernization of our production park.
For this first pillar to be achieved, the country must be able to establish a favorable trajectory for public accounts, promote institutional tranquility, reduce social inequality and preserve the environment.
These are the preconditions for the other equally essential adjustments, which must be centered on promoting competitiveness and productivity and attacking the root causes of the so-called “Custo Brasil” (Brazil Cost), starting with the dysfunctionality of our tax system.
In this area, we initially need to replace the taxes levied on the consumption of goods and services with a Value Added Tax (VAT), with collection at destination and isonomic rates, which reduces complexity and legal uncertainty, eliminates cascading effects, ensures the rapid return of credits generated in the system and exempts exports. There are already legislative bills in debate; we must now take action.
We also need to move forward with an administrative reform, focused on improving the provision of services by the government, on digitalization, bureaucracy reduction and lowering the cost of providing these services over time. Also, we must move quickly in expanding and modernizing our infrastructure through concessions to private companies in all sectors, especially in sanitation, roads, railways, ports, airports and connectivity. And with the effective participation of the State, preferably through public-private partnerships, in those projects that are not economically viable, but desirable from the perspective of social development. It will be necessary to continue improving labor relations, due to the modernization of work practices, as well as reducing legal insecurity in all areas.
This agenda also involves accelerating research, development and innovation in our country, making the promotion mechanisms simpler, horizontal and efficient, with an immediate revision of the "Lei do Bem" and continued allocation, with no withholding of disbursement, of resources to meritorious entities such as Embrapa and the Institutes of Science and Technology. In this way, we will be able to move forward with the modernization of the production park through comprehensive, non-sectoral instruments and with the development and diffusion of digital and environmentally responsible technologies, enabling greater participation in international value chains of the sectors that produce higher technology intensity manufacturing goods.
For this, it will be important to deepen the participation of the BNDES in accelerating infrastructure, fostering research, development and innovation and advancing in foreign trade, areas in which the Development Bank's investment capacity is truly differentiated.
At the same time, it is essential to promote greater integration of Brazil with the world economy, preferably through trade agreements that provide transparency, horizontality and gradualism to the process. In this sense, the trade agreement between Mercosur and the European Union is a watershed, as it would enable the rapid adoption of similar agreements with the main commercial hubs in the world. By the way, this was the strategy of integration into the world practiced by most countries. Obviously, the failure to conclude this agreement will be a major setback in this agenda.
At the same time, we must promote the adoption of the appropriate protection mechanisms, used around the world and disseminated by the WTO, especially the application of anti-dumping mechanisms, when technically justified. Admission to the OECD is also important, as it would promote the domestic adoption of patterns of success at different points of our legal framework.
The IEDI believes that the correction of distortions in the economic structure should be accompanied by social development, the reduction of inequality and the promotion of environmental sustainability, which are inseparable parts of a nation's development.
The huge contingent of Brazilians without the minimum conditions of income and access to housing, quality education, security and sanitation clarifies the need to adopt public policies in the social field that promote the reduction of inequality, especially through the increase of social mobility.
A country with low social mobility is condemned to be less competitive and less innovative. Progress in the country's social architecture have the capacity to make the consumer market even more vigorous and to raise labor productivity, which would strengthen the industry as well as all other sectors of the economy. Reinforcing our commitment to the environment will prevent us from further isolating ourselves from the world and will guarantee the right of future generations to our natural wealth.
We have an obligation to build a fairer future for Brazilians and a more productive and efficient future for our entrepreneurs. Without a clear and workable agenda, we will hardly get there.
Dan Ioschpe is the president of the Institute for Studies in Industrial Development (IEDI).