BRASILIA President Dilma Rousseff announced on Wednesday the extension of a government lending program to boost purchases of capital goods, telling business leaders Brazil must increase industrial investment if it is to restore vigorous economic growth.
The world's sixth-largest economy grew much less than expected in the third quarter, despite a barrage of tax breaks and other stimulus measures taken by Rousseff this year.
Economists say the once-booming economy grew for a decade by expanding consumption and Brazil must now raise investment levels that are much lower than those of other emerging markets.
In a speech to the country's main industrial lobby, Rousseff called on the private sector to invest more despite a period of slow economic growth that is in its second year.
"Next year industrial growth will have to be much stronger. The country needs to increase its investment rate," she said at an event organized by the National Industry Confederation (CNI).
The speech, which focused on her government's efforts to revive Brazil's sputtering economy following disappointing data, was one of her most important policy addresses in recent months, a senior government official said.
Rousseff said the Brazilian economy was in a period of transition and the incentives provided by her government this year needed time to have an impact on economic activity.
Brazil will extend through 2013 a special lending program by the state development bank BNDES that lowers the cost of capital goods for industries and agriculture, the president said.
Finance Minister Guido Mantega later said the credit line would be increased to 100 billion reais ($47.50 billion) for 2013, with 85 billion reais coming from the BNDES and 15 billion reais offered through the banking system.
The interest will be 3 percent in the first half of 2013 and rise to 3.5 percent in the second half of the year, and loans will be available for up to 10 years to buy capital goods such as trucks and machinery, he said at a news conference.
Brazil must increase investment to grow by 4 percent next year, Mantega said. Investment, which has declined for five straight quarters, will pick up in the last quarter of this year and grow by 8 percent in 2013, the minister said.
"Industry is growing again," Mantega said, predicting that investment would grow by 8 percent in 2013, thanks to lower labor, financial and energy costs.
GROUND LAID FOR GROWTH
Rousseff said the current favorable mix of record low interest rates and the weakening of the Brazilian currency, the real, prepared the ground for increased production.
Brazilian industrial output posted its first annual increase in more than a year in October as a tax break on automobiles helped support a nascent recovery in the country's beleaguered manufacturing sector.
But investment remains weak, raising doubts about the strong recovery forecast by the government for next year.
On Tuesday, Rousseff's government exempted the country's construction industry from paying payroll taxes. The aim is to encourage investment in building by lowering the cost of labor.
Rousseff's government on Thursday will unveil a new regulatory framework aimed at attracting private investment to modernize Brazil's overcrowded ports and eliminate bottlenecks that raise transport costs and slow Brazil's exports.
By the end of the year, new private concessions will be announced to upgrade airports, the president said.
The government also plans to extend a tax refund for exporters of manufactured goods though the next year, an administration official said at the event.
Rousseff also vowed to continue her efforts to reduce Brazil's very high energy costs and complained about the companies that have resisted the government's terms for the renewal of concessions for power utilities.
"The federal government regrets the insensitivity of those who do not appreciate the importance of this for the country to grow in a sustainable way," the president, a trained economist, told her audience of businessmen.
The government had hoped to lower energy costs for residential and commercial consumers by an average of 20 percent as of next February, helping curb inflationary pressures and lowering a major cost that has made Brazilian industry less competitive.
But after several utilities rejected the government offer for early renewal of their concessions in exchange for charging lower rates, the government has acknowledged that it will only be able to cut electricity costs by 16.7 percent.
Critics of the new electric power concession regime said it would reduce investment needed to expand Brazil's generating capacity.
($1 = 2.1108 Brazilian reais)
(Additional reporting by Alonso Soto and Tiago Pariz; Editing by Kenneth Barry, Walker Simon and Tim Dobbyn)
Trending On Reuters
Reliance Industries Ltd plans to invest about 2.5 trillion rupees ($39.3 billion) in digital initiatives, Chairman Mukesh Amabani said on Wednesday. Full Article
India to provide roadmap for ending corporate tax exemptions in 45 days - official Full Article