Feeble GDP performance unnerves business leaders

Here we go again. Every time Brazil trips down another step towards the hell of recession and high inflation, the finance minister, Guido Mantega, acknowledges that there has been a setback, puts the blame on a number of banana skins, says the international situation is unfavorable and quickly goes on to say that he has some indicators, that only he can see, which show that things will get better soon. This was exactly what happened last week after the national statistics agency, the IBGE, announced figures that showed the Brazilian economy has come to a halt. The minister said: “GDP was below our expectations. We had local problems in Brazil but credit has begun to improve”. Once again, Mantega acted irresponsibly by going against any objective assessment of the economic situation and reaffirming his certainty that Brazil was on the right track.

Not a single sector of the economy performed well in the IBGE figures. Moreover, investments in expanding productive capacity, which are the main indicator of an economy´s health, sank — a sign that this bad situation will only get worse.

GDP fell by 0.6% over the first three months of the year and by 0.9% compared with the same quarter of 2013. This means that when Brazil´s growth in 2014 becomes clearer in December, the least bad result will be a rise of less than 1% and the likeliest outcome is zero. Outside the fantasy world that obscures the view of Mantega and his subordinates, in the real world the diagnosis for disaster is very different. It is almost unanimously agreed by business leaders, including even those with a close relationship to the government, that the problem is serious and has resulted from the economic model put in place by the Rousseff government over the last three and a half years. To avoid the political costs of confronting the economic problems with orthodox instruments, the government opted for price control, neglected the deficit in the public accounts and has tolerated high inflation.

These direct government interventions in the economic life have had the effect of a dagger in the heart of the essence of what makes a country prosper: confidence. The business leader Benjamin Steinbruch, president of CSN, the second-largest steel producer in Brazil, was interviewed in this edition of Veja and summed up the overwhelming feeling: “Only someone who is crazy would invest in Brazil”. With her interventionist and centralized decision-making style, Rousseff has managed to lead the Brazilian economy into a technical recession, as shown by the IBGE numbers. Brazilian industrial production fell by 1.5% between April and June while investments dropped by 5.3%. This was the fourth consecutive quarter of decline. Having said that, has the government not exempted payroll taxes, cut other taxes and given incentives to boost the economy? Yes, but these measures have never worked at any time anywhere in the world when the mechanisms for wealth creation have been paralyzed. The incentives are limited to keeping the economy in a vegetable-like state and totally dependent on the state. When the governing power decides to direct a country´s economy, investors get frightened as they cannot exercise their role in the creation of wealth, which was defined by an English economist in the 19^th century as follows: “The market economy is a place in which anyone pays a very high price to have the right to run risks”. The recipe for paralyzing the economy that was adopted by Rousseff involves removing the initiative from the investors. Ronald Reagan, who served for two terms as President of the United States, brilliantly described this obsessive government control in making business leaders totally dependent on the central power:  “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” This is a perfect slogan for the Rousseff government.

Abilio Diniz, an important Brazilian business leader who was responsible for the growth of the Pão de Açúcar supermarket group and now leads the BRF food processing giant, joins the choir of those who are unhappy. “Industry was trashed by the tax system. The Federal Revenue treats us like criminals”. The level of employment in industry fell by 3.1% in June. Businessman Jorge Ger­dau, who had previously cooperated very closely with Rousseff, got his feelings off his chest by claiming that “Brazil´s state bureaucracy is medieval”. Those who had bet on the growth of the economy, such as the BTG Pactual bank, owned by André Esteves, are now looking for alternatives abroad. BTG wants to be the leading investment bank in Latin America and have a global reach. Two months ago, it bought the reinsurance company Ariel and one of Switzerland´s biggest banks, BSI, and is looking for opportunities in Me­xico. This group of mega business leaders is alarmed at the way the country is heading and with the shipwreck the Rousseff government has made of the economy.

• Mais lidas

1

Política

‘Raiva e ódio’: As conversas entre Moraes e o comandante do Exército, segundo Mauro Cid

2

Brasil

Três pessoas queimadas em balão em Santa Catarina morreram abraçadas

3

Esporte

Os próximos jogos dos clubes brasileiros na Copa do Mundo de Clubes

4

Brasil

Os relacionamentos de Francisco Cuoco: namorada 54 anos mais jovem

5

Mundo

O que se sabe até agora sobre a entrada dos EUA na guerra de Israel contra o Irã

• Dilma Rousseff