Home' Trinidad and Tobago Guardian : December 4th 2014 Contents DECEMBER 2014 • WEEK ONE www.guardian.co.tt BUSINESS GUARDIAN
In 2005 a debate raged between the
two most powerful figures in the
government of President Luiz Inacio
Lula da Silva of Brazil. Finance Min-
ister Antonio Palocci proposed taking
advantage of faster economic growth
to eliminate Brazil s persistent fiscal deficit,
and thus lower its exorbitant interest rates,
by capping the increase in federal spending.
Dilma Rousseff, Lula s chief of staff, thought
Palocci s plan "rudimentary" and blocked
it. Rousseff became Lula s successor as
Brazil s president in 2011, implementing a
"new economic model" that placed full
employment and wage increases ahead of
However, fiscal laxity has come back to
haunt Rousseff, who won a second term
last month by the narrowest of margins. As
this article went to press she was due to
announce that Joaquim Levy, one of Palocci s
deputies in 2005, will become her new
finance minister. Nelson Barbosa, the most
capable economist in the ruling Workers
Party (PT), will get the planning ministry.
Levy is a Chicago-trained economist who
has been running a big asset manager, and
his presumptive appointment has been wel-
comed by investors. It seems that Rousseff
at last has tacitly accepted the error of her
She won the election by pointing to Brazil s
full employment and continuing increase
in real incomes, but these achievements
were bought by mortgaging the future.
Despite mediocre growth, most of Brazil s
economic indicators have moved in the
wrong direction under Rousseff. Inflation
is over 6 per cent, well above the Central
Bank s target of 4.5 per cent, even though
the government has held down energy prices.
Consumer confidence is at a six-year low.
The current-account deficit has widened
to 3.7 per cent of GDP and the real has been
The biggest worry is that the fiscal posi-
tion has deteriorated by 3-4 per cent of
GDP in the past three years. This week,
having missed by a mile its target for a pri-
mary surplus---before interest payments,
that is---of 1.6 per cent of GDP and thus
violated the Fiscal Responsibility Law, the
government was cynically persuading Con-
gress to change the rules so as to pretend
that it had met that goal. Rating agencies
are muttering that, if Brazil carries on like
this, it will lose its investment-grade credit
The new team s first task is to restore
credibility to economic policy. That means
restating Brazil s commitment to its pre-
2010 "tripod" of independent monetary
policy, fiscal responsibility and a floating
It also means tightening the budget. In
order to minimise the impact on jobs, Bar-
bosa has said, this should happen gradually
and should focus on reining in a relentless
increase in social-security spending.
How much time will the new team have?
Market-watchers expect the Central Bank,
whose president, Alexandre Tombini, is bent
on showing his independence, to defend
the inflation target by raising the benchmark
interest rate, which already is at 11.25 per
cent. This monetary squeeze will come as
fiscal policy turns contractionary and the
government curbs rampant lending by state
Barbosa s main job may be to design a
crash program to attract private investment
into infrastructure. Even so, growth will fall
at first and may not recover for a year or
If the new team is to be successful, Rouss-
eff not only will have to let them do their
job without the meddling of her first term,
but also will have to defend an economic
program that will be unpopular in the short
run, especially within her own party. Indeed,
the program is closer to that of her defeated
opponent, Aecio Neves, than to the one on
which she campaigned. Neves likened Levy s
appointment to a senior CIA man taking
charge of the KGB.
The president will be supported by a
smaller and looser majority in the new Con-
gress than she has been used to. Brazilian
legislators are wont to demand pork-barrel
spending in exchange for their votes, poten-
tially making the economic team s job hard-
er.There is an even darker political cloud on
her horizon. Brazilian prosecutors and Amer-
ican regulators are investigating claims that
kickbacks worth billions of dollars were fun-
neled to the PT and allied politicians from
contracts placed by Petrobras, the state-
run oil company. What makes this so dam-
aging for Rousseff is that she chaired Petro-
bras board during much of the time. That
nobody believes she is personally corrupt
might not prevent an attempt to impeach
her, though that still looks improbable.
No modern Brazilian president has faced
a weaker starting point. Rousseff has tried
to offset that by picking the strongest eco-
nomic team for which Brazilians could rea-
sonably hope. It is at least a start.
@2014 The Economist Newspaper Ltd.
Distributed by the New York Times Syn-
The World Bank says the Kenny
Anthony administration is report-
ing "concrete advances" in
investment climate, connectivity
and productivity. The Washing-
ton-based financial institution
said that the St Lucia government, the private
sector, civil society, youth and academia have
"concluded that the country has made significant
progress in meeting its commitments" made at
the start of the second accountability workshop
of the Caribbean Growth Forum (CGF) held here.
The World Bank said the St Lucian Growth
Forum (GF) chapter is coordinated by the Depart-
ment of Planning & National Development of
the Ministry of Finance, and comprises repre-
sentatives of the Government and private sector
in collaboration with the World Bank, the Inter-
American Development Bank (IDB), Compete
Caribbean and the Caribbean Development Bank
"Over the last decade, St Lucia has grabbled
with the challenge of reshaping its economy;
growth has been slow and unemployment, par-
ticularly among the youth, high.
"The CGF has provided a forum to assist the
government in implementing reforms needed for
the country to become more competitive and
innovative," The World Bank said.
The Washington-based financial institution
said the discussion underscored enhanced Inter-
net, information communications technology
(ICT)-related services and infrastructure, fiscal
incentives for improved business climate, and
boost in productivity.
It said the St Lucia Ministry of the Public
Service has established Wi Fi hot spots at key
locations throughout the island, that a community
access center is now "accessible and available"
to residents in the town of Soufriere, and con-
struction of two new ICT access centres has
commenced in Micoud North and Vieux-Fort
"St Lucia will be the recipient of a Government
Island Network Project destined to create Wi Fi
hotspots island-wide," the World Bank said,
adding "Wi Fi hot spots will also be created at
libraries throughout the island to increase access
to communities and schools".
In assess fiscal incentives for improved business
climate, the bank said the St Lucia Department
of Finance has commenced work to enhance the
effectiveness of the current incentives regime
and improve transparency of incentives.
"This project is expected to provide additional
support to private sector development by re-
focusing the incentives regime on specific devel-
opment objectives," it said.
Through the National Productivity Council,
the World Bank noted that the St Lucia Gov-
ernment completed the first "productivity assess-
ment," an innovative approach that includes
teaching youth and providing tools to increase
on productivity in the workplace.
It also said that the Economic Planning Unit
within the St Lucia Department of Planning &
National Development is facilitating continued
dialogue and implementation of CGF activities.
The CGF s St Lucia Chapter was formally
launched in January 2013 under the leadership
of the Ministry of Finance, Economic Affairs,
Planning and Social Security.
The World Bank said the CGF provides a "plat-
form for private sector and civil society to give
feedback on national and regional reforms and
help track the implementation of actions needed
to spur sustainable growth and opportunities for
all in the Caribbean".
for Brazil's economy
World Bank: St Lucia
reports 'concrete advances'
in investment climate
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