Henrique Meirelles: Starting point to fix Brazil is to grow by reducing inequalities

The two main challenges facing Brazil are to grow again and reduce the enormous social inequality, which has worsened in the last decade. The main cause of the problems is known: the economy is practically stagnant, without recovering the pre-recession GDP level of 2015-2016. And the diagnosis is made: the reduction of social inequality depends on the sustained growth of employment and workers’ remuneration. And, also, the generation of wealth and tax collection, which makes feasible efficient and focused programs of income transfer to the vulnerable.

The immediate objective of the next government is the urgent and efficient reversal of the current situation, under penalty of having another decade lost. It will be necessary to bring perspective to young people from lower income classes through the generation of opportunities; to stop the emigration of talents and skilled labor; create opportunities for investors and entrepreneurs and contain the leakage of resources that could be directed towards investments.

Accelerating growth depends on an increase in the investment rate –which is substantially lower than the average for neighboring countries– and on productivity gains –which has been practically stagnant for decades. Achieving these goals, on a satisfactory scale, requires the majority participation of the private sector, which demands focus and better quality of state action.

The moment is particularly critical due to the end of the demographic bonus, the technological backwardness, the need for a digitized workforce, the growing attention to environmental issues and new demands in the health area. The changes require budgetary flexibility to deal with society’s new demands, in addition to planning capacity and coordinated actions with other entities of the federation.

State action needs to focus on areas where the return to society is greater than the private return. Do fewer things and do them well, with a focus on the citizen. This is also the way to reduce the tax burden in the future.

At the same time, legal frameworks are sources of legal uncertainty that hinder investment, innovation, entrepreneurship and productivity.

The State needs to be strong (it does not mean to be big) to fulfill its role of providing quality of life and opportunities for the prosperity of its citizens. This requires:

(1) Reestablishment of a stable macroeconomic framework – stability is the foundation of growth and an essential condition for the advancement of other structural issues, as economic weakness reduces the space for political negotiation;

(2) Reduction of social inequality – with adequate allocation of resources and improvement in the State’s performance;

(3) Investment in human capital formation – the basis for guaranteeing a decent life for people and promoting greater social mobility, the education of children and young people and the training of adults will have to be a priority;

(4) Promotion of a business environment that facilitates production and is environmentally sustainable – increasing legal security and creating conditions for the private sector to expand investment and act as the main engine of growth and generation of employment and income, respecting the environment and valuing our diversity.

In the environmental field, Brazil needs rules that encourage private actions to accelerate the step towards a zero carbon economy. We have different conditions both in energy generation and consumption in the industrial and transport areas, with green fuels gaining ground. The preservation of the Amazon is imperative. Clear regulations, which encourage the preservation of the environment and guarantee the value of the standing forest, are the way to create a market that promotes preservation and generates economic development.

Reforms are urgently needed to make Brazilian companies better able to compete globally. And we need to promote trade agreements with strategic countries and expand trade representation in key regions of the world.

It will be essential to advance on these various fronts at the same time, as they are actions that complement each other and increase the effectiveness of each other. As there is no “silver bullet” to achieve each of these goals, the definition of priorities needs to be careful, based on accurate diagnoses. And only an experienced team, with proven results, will be able to guarantee the necessary transformations for Brazil.

This week, the Mercado section publishes a series of articles on economic issues considered sensitive by the main pre-candidates for the presidency of the Republic in this year’s election. The proposal is to start the debate on themes that should guide much of the campaign – such as reducing unemployment and inequality, raising income, fostering innovation, modernizing the business environment, improving the credibility of the fiscal framework, in short, putting the Brazil on the path of structurally robust and environmentally sustainable long-term growth. The articles, signed by economists who participate in the support group for pre-candidates, are published daily in alphabetical order.