Brazil is still a land rich with opportunity, as its educated workforce, sophisticated capital markets, ever-growing private companies and large infrastructural needs show, writes the country's new finance minister, Joaquim Levy.

The words of Sir Winston Churchill in 1940 seem to capture quite aptly the current situation of the world economy in the aftermath of the financial crisis of 2008: It is not yet the beginning of the end, but rather the end of the beginning. 

The adjustments in asset prices observed in the past six months provide clear evidence of market forces coming back after a long period of prominence of supportive government policies. The gradual withdraw of monetary stimulus in the US and the rebalancing of the Chinese economy have created a new environment, which is now being translated into this realignment of prices.

Any large transition brings some volatility and what is happening is compatible with such an important transition, which catches countries at different stages of their recovery cycle or in addressing their structural issues.

Brazil's strong position

Brazil is in a solid position to face the changes in the world. The size and diversification of its economy means that changes in relative prices can be countered by the reallocation of resources across the economy, allowing growth in some sectors to compensate, at least partially, for less favourable conditions in others. Its domestic market also provides a good foundation for those Brazilian companies that decide to compete in global markets. 

Moreover, Brazil has strong institutions and a very solid democratic system, both of which have shown their resilience and ability to foster important transformations in national life without undue turbulence or ruptures. Together with our tradition of peaceful relationship with other countries, and a population that reflects a real melting pot and with median age below 30, these institutions are very valuable assets for the country.

When we look at our people, we are confident that Brazil has used wisely the years of the so-called 'super-cycle of commodities'. The country invested in improved education, an investment that is bearing fruit through steady progress in basic education and the doubling of students attending college when compared with 10 years ago. Today there are more than 6 million students in public and private colleges in Brazil. Lower levels of education have also improved, and in the past few years efforts have been made to expand technical education. These changes are profound, bringing new opportunities to new generations and a new pool of workers for companies operating in Brazil. Their impact on the economy is still incipient but powerful.

Setting standards

Among our most respected institutions is the Central Bank of Brazil. It has ensured financial stability and instilled standards that are among the best in the world. Brazilian financial markets in general are broad and deep, with one of the largest and more open markets for international investors in local currency in the world. The infrastructure of the capital markets in Brazil – including the nuts and bolts of the payment system, the clearing of securities, and the management of risks – have been studied and taken as examples by several countries, being as it is one of the safest and most modern such systems in the world. Our system of inflation targeting has also proved its worth, delivering inflation within the allowed range in the past 10 years.

Domestic capital markets are expected to play an increasing role in financing infrastructure in Brazil. In face of the new global environment, Brazil is renewing its efforts to increase its investments in infrastructure, selecting key projects and devising new financing instruments. This is a huge and urgent agenda. It is also one in which the role of the private sector will be ever increasing.

The participation of the private sector in the Brazilian infrastructure has been crucial in the past 20 years. Taking ports, which was perhaps the first sector to be privatised back in 1993, as an example, it is clear that the results of this strategy have been extremely positive. The number of ports in Brazil has increased since this privatisation drive started and the worst bottlenecks have been addressed. The speed with which cargo goes through ports, although on average still well below the desired levels, has made significant progress and is among the highest in the world in some Brazilian facilities. 

Recently, with the conclusion of the first privatisation concessions, the government undertook a review of the model, expanding its scope based on two axes. First, it facilitated the construction and operation of private ports. Second, it laid down the foundations to reorganise the leases of public ports, to improve their efficiency, particularly in light of the major shifts in cargo technology and the diversification of trade observed in the past 20 years. The possibilities in this sector remain very attractive and the interest of domestic and foreign investors in them keen.

Most other areas in infrastructure in Brazil have also benefited from private investment, notably energy, telecommunications, roads and railroads. We are also witnessing participation in urban rail, through concessions and public-private partnerships, and in sanitation, where public and private companies operate alongside each other. In the past four years, airports have also been transformed with the help of private investors and operators, usually with foreign partners.

Leading the way

This successful model will be expanded and in the future will rely more heavily on the capital markets. Brazil can become the testing ground for one of the great opportunities in global capital markets, as it develops ways to harness savings to effectively and profitably invest in infrastructure. 

Long-term investment in infrastructure can deliver extraordinary social returns on at least two counts. It will be one of the safest havens for the savings of pension funds and other vehicles, particularly from developed countries with large ageing populations. It will also be a force of transformation, and increase global output and welfare by transforming the lives of millions in developing countries. The long tradition in Brazil in protecting investors, the sophistication of its tried-and-tested capital markets, the attractive conditions of many investments opportunities, and the sheer size and diversity of Brazil make it probably the best place in the world to develop investment bonds as a global asset class.

The increasing role of the private sector in financing these endeavours dovetails with the desire and need to rebalance fiscal policies after a few years of traditional demand-based fiscal stimulus. The strengthening of fiscal policies will be based on the country's decade-and-a-half-long experience in witnessing the advantages of achieving clear targets and the value of transparency in public accounts. In this occasion, a target for the primary surplus of 1.2% of gross domestic product [GDP] was adopted for 2015, with further strengthening to 2% of GDP in 2016 and 2017.

These targets were established with a view to bringing the gross debt of the general government to a favourable trajectory, with a decline after 2016. To achieve that, the main tool will be a review of general expenditure and the reduction of expenditure, including some sectoral programmes and subsidised loans. The aim is to promote the domestic saving rate, first of the public sector and also of firms and households, so that it reaches levels that are comparable with investment rates. This is required to ensure that GDP growth of at least 3% is achieved in the medium term.

This rebalancing in response to the new environment will require some effort, but is feasible and is likely to deliver positive returns for the economy in a relatively short span of time. The experience from past episodes of fiscal rebalancing is that the Brazilian economy responds quickly to the right prices and predictable policies. Therefore, together with the streamlining of taxation and measures to boost labour supply and competition, it can help create a new path of economic growth, and consolidate the progress made in the past decade with regards to social transformation and greater inclusion in Brazil.

Joaquim Levy is Brazil's finance minister.


All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker

For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Top 1000 2023

Request a demonstration to The Banker Database

Join our community

The Banker on Twitter