* Rousseff says Brazil a victim of “predatory competition”
* Government unveils tax cuts and more subsidized loans
* Measures seek to boost growth toward 4.5 pct growth target
* February industry shows signs of life, down from year ago
By Alonso Soto and Luciana Otoni
BRASILIA, April 3 (Reuters) – Brazil’s government unveiled a
new package of tax cuts, low-cost credits and other relief for
ailing industries on Tuesday, seeking to resurrect a
once-booming economy struggling to regain momentum.
In a speech to business leaders in the capital, Brasilia,
President Dilma Rousseff said the measures are necessary to
revive Latin America’s biggest economy and help Brazil defend
itself against what she called “predatory competition” from
low-cost rivals in the global marketplace.
The measures were announced the same day that fresh data
showed signs of life in Brazilian industry after a prolonged
slump. Analysts, though, cautioned that the latest policies
fail to tackle the overall tax burdens, heavy bureaucracy and
lack of investment that have long held back Brazil.
Since the global slowdown brought Brazil’s economy to a
near-standstill late last year, policymakers have been taking
incremental steps to revive it. But after five consecutive
interest-rate cuts, a rise in import taxes on cars, and a series
of measures designed to curb the appreciation of Brazil’s
currency, a recovery is far from clear.
Critics in recent months have blasted the Rousseff
administration for policies increasingly seen as protectionist.
But Rousseff on Tuesday put the blame at the feet of
developed countries, where the financial crisis originated, and
big exporters like China and the United States, whose currencies
she has long argued remain artificially weak and unfairly
competitive against the Brazilian real.
“We will not hesitate,” she said, “to do what we must to
defend our jobs, our industry and our growth.”
The government said it will cut payroll taxes to spur hiring
in sectors as varied as textiles and plastics to the automotive
industry. Together, the tax cuts represent about 10 billion
reais ($5.5 billion) annually in forgone public revenue, part of
which the government will seek to recover with tax increases on
products such as alcohol and tobacco.
The government will also stimulate domestic industry through
government purchases and inject 45 billion reais ($24.6 billion)
into the coffers of state development bank BNDES, which provides
subsidized loans for Brazilian companies and is the main source
of long-term financing in Brazil, especially for much-needed
infrastructure projects.
FOREX MEASURES IN THE PIPELINE
The moves are the second such stimulus package for ailing
Brazilian industries since the country’s previously red-hot
economy began to cool in mid-2011, hit by fallout from Europe’s
sovereign debt crisis and slower growth in China, Brazil’s
biggest trade partner.
Finance Minister Guido Mantega, who unveiled the measures
before Rousseff and other government officials, said Brazil
would also continue to enforce recent measures aimed at
preventing the real from strengthening further.
While the moves to raise taxes on certain financial
transactions and speculative capital have curtailed the
currency’s rally in recent months, the real is still about 30
percent stronger than at the depths of the 2008 financial
crisis.
The currency firmed after Mantega’s comments, in which he
said the recent retreat by the currency had put the real back at
a “reasonable” level. The real gained 0.3 percent on Tuesday
trade to 1.8250 to the dollar.
After growth of 7.5 percent in 2010, Brazil’s economy nearly
screeched to a halt late last year, posting a full-year gain of
just 2.7 percent – far less than originally predicted. The
government hopes the new measures will help it reach its
projection for growth of as much as 4.5 percent in 2012.
Though welcomed by Brazilian industry as helpful, the
package was criticized by economists and business leaders as
falling far short of the true reforms necessary to help unburden
Brazil’s economy from high taxes and red tape.
“This doesn’t solve the problem,” said Mauricio Rosal, chief
economist at Raymond James in Sao Paulo. Long-term, he added,
“this does nothing to address the problems of competitiveness.”
Fernando Marques, owner of a local pharmaceutical company,
Uni GBPo Qu -mica, urged the government to do more.
“The government still needs to tackle the real problems
hurting industry,” he said. “We need tax reform.”
Long-pending tax, judicial and pension reforms are among the
many big overhauls economists say Brazil needs to free up
investment and make the economy more efficient.
In a study released Tuesday, Fitch Ratings said the country
remains more attractive to investment than it did in decades
past but that further progress remains elusive without “a
reduction in cost of doing business.”
INDUSTRY RECOVERY NOT CLOSE
Government figures on Tuesday showed that industrial output
in February recovered most of its lost ground from a sharp drop
in January, when Brazil’s overvalued currency and economic ills
abroad continued to erode the competitiveness of manufacturers.
Industrial production rose a better-than-expected 1.3
percent in February, the best monthly growth rate in a year. In
January, industrial output contracted a revised 1.5 percent,
less than a previous estimate of a 2.1 percent decline.
Despite the snap back in February, analysts cautioned it is
too early to say that a genuine recovery is underway. A weak
industrial sector was one of the main culprits for disappointing
economic growth in 2011.
“We can’t say industry is recovering.,” said Thiago Carlos,
an economist at Link Investimentos in Sao Paulo. “It’s still
weak and it keeps suffering from problems of competitiveness,
and there is no real improvement on the horizon.”
