Brazil lures private sector in bid to boost economy

Julian Harris
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BRAZIL’S President yesterday announced that up to 133bn real (£42bn) will be put into boosting infrastructure work across the country, in a bid to kick-start the supposedly emerging economy back to life.

President Dilma Rousseff’s plan will utilise the private sector in building roads and railways, while delivering other supply side reforms.

The reforms include liberalising labour laws and privatising some areas of infrastructure, while Rousseff will also aim to slash taxes on electricity and mitigate the government’s pension costs.

Further measures are expected to be revealed in the coming weeks. Rousseff’s stance signals a change in direction from Brazilian governments’ previous attempts to bolster demand through more typical stimulus packages.

“This would mark a welcome change to the government’s interventionist bent to its approach to economic policy,” commented Nick Chamie, an emerging markets researcher at RBC Capital Market.

Brazil makes up the “B” in the so called BRICS group of emerging economies, along with Russia, India, China and South Africa.

Its economy boomed by over 7.5 per cent in 2010, yet growth slowed to just over 2.7 per cent last year. And it will expand by just 2.1 per cent in 2012, the Centre for Economics and Business Research predicted this week.

“These set of measures, if they materialise, would be a very positive effort on the part of the government to address constraints on Brazil’s long-term growth potential by addressing some of its supply-side weaknesses,” Chamie added.

The cost of electricity and labour – as well as poor infrastructure – have hampered the south American giant’s growth, Chamie said.

Yet economists warned that most of the measures would be prone to time-lag, with the benefits potentially not realised for several years.

“Yesterday’s announcement suggests that the government has finally acknowledged that the economy’s problems are not just cyclical in nature,” added Neil Shearing of Capital Economics.

“Yet while the measures are a step in the right direction... it is equally obvious that these represent only a small fraction of what needs to be done,” Shearing warned.