Sao Paulo economist Luciano Coutinho is frequently quoted in the Brazilian press, and has been a consultant to the government on economic issues. He projects Brazil's growth rate in 2001 at 4.6 percent, but said it could range from 2.2 percent to 6.6 percent, depending on the global economy and Brazilian politics. Strong growth depends on a soft landing in the United States and no significant international shocks, he cautions. Plastics News staff reporter Steve Toloken sat down for a wide-ranging interview at the offices of Coutinho's consulting firm, LCA Consultores. Here is an edited version.
Q: What factors do you think will influence Brazil's growth rate?
A: I think we do have two important conditions. One is, of course, the international scenario, because Brazil is a net importer of capital on a large scale. We have a current account deficit of 4.2 percent of [gross domestic product], which will be this year something around $27 billion. In 1999, you had a very high level of foreign direct investment — $30 billion. This year we expect something less, and next year something less also, both because most of the privatizations are over and also because you have political uncertainty.
You do have an overall general election in 2002, which is a critical election. It encompasses the whole Brazilian power structure. So far if you look to the polls, opposition candidates dominate the scenario. [He noted that President Cardoso has an approval rating of about 25 percent, but his government's economic program, the Real Plan, has an approval rating of 48 percent, "so we think that President Cardoso has room to recover yet." Cardoso, who cannot run again, has not named a clear successor: "There is no candidate yet which could calm down the markets."]
Q: If one of the opposition candidates win, how will it affect the manufacturing sector?
A: Not directly. All of those candidates are pretty much in favor of industrial policies of more protection, more stimulation to the industrial sectors. The three opposition candidates wish for a trade surplus so that Brazil would be stronger. They would all try to boost exports and give more incentives to the manufacturing sector. But the financial markets could react badly, and as a consequence, affect the whole economy.
If the economy grows and the international market is all right, the labor market will improve and the popularity of Cardoso will improve, and his ability to cement a strong official candidate will be high, and then this candidacy will be a competitive candidacy. It is not sure that they could win [but] markets could calm down if they see there is a possibility of continuity.
Q: Does Cardoso favor the same protectionist-oriented policies that the opposition candidates favor for the manufacturing sector?
A: The economic team of Cardoso is more of a liberal team. He opened up the economy. They don't want any kind of excessive protectionism. So far the dominant position is liberal in terms of trade and investment — to let the Brazilian economy remain very open.
Q: The opposition candidates would change that?
Q: Brazil has a sizable trade deficit with the United States in the manufacturing sector, including in all sectors of the plastics industry. Is that likely to change?
A: If an opposition candidate wins, they will try to accelerate the adjustment of those deficits into a surplus with a more protectionist kind of policy. Whereas an official candidate, although you might have a surprise, but I would say an official candidate would go more slowly in terms of an adjustment.
The whole Brazilian elite business community is already convinced that the degree of external vulnerability is too high. This is not good for the country, and it is not good even for foreign investors. It is the manufacturing sector that suffers from the very high vulnerability. The Brazilian economy has a very high growth potential. The Brazilian economy could grow at 6 percent per year say in 10 years if it had a better balance of payment or a less vulnerable balance of payment. Of course the way of doing that, through efficient competitive policies or through pure protectionist policies, is an important issue.
Q: Brazilian government officials and plastics industry groups announced a plan at Brasilplast 2001 to provide billions of dollars in low-interest loans to industry. What is your reaction?
A: Government and business sectors have been discussing an effort to make the whole chain more competitive. All these efforts are usually good if they don't rely heavily on protectionism or particular incentives that could create distortions. Cheaper money would flow to the Brazilian private sector, which has a much higher capital cost. Interest rates are very high. It is not easy for Brazilian businesses to go to the international capital markets.
Q: Let's talk about trade. Brazil favors a slower formation of the Free Trade Agreement of the Americas than the United States. How does Brazil view FTAA?
A: The risks for Brazil in a very rapid integration are much higher than for other Latin American or South American economies. They don't have any dream of becoming an industrial powerhouse, whereas Brazil still has its own manufacturing sector.
It is not clear at all that we could gain anything, even in the sectors in which we are clearly competitive. On the other hand, we have the risk to lose a large portion of our manufacturing sectors. The U.S. is highly protectionist, and the U.S. has an anti-dumping law, which enables it to block Brazilian exports to the U.S. very easily. The U.S. would have to renounce the use of anti-dumping and other nontariff barriers, and really open up its markets to sectors in which Brazil is competitive.
The other thing Brazil has is a lot of European investment. If you take it as a whole, trade with the European Union is more important than trade with the United States. In direct investment, the European figures are much larger than U.S. investment. That could make it inefficient to have only a one-sided privileged relationship with the United States.
Q: What is the future of Mercosul, the customs union between Brazil, Argentina, Uruguay and Paraguay? There is obvious tension between Argentina and Brazil over Brazil's currency devaluation in 1999.
A: For Brazil, Mercosul is very important. Of course Mercosul reinforces Brazilian bargaining capacity [in FTAA]. However, the future of Mercosul will depend on how Argentina and Brazil together try to solve the monetary question of the exchange-rate regimes, which are very different and are incompatible in the long run. It is not possible to go forward to an economic integration with one country having a currency rigidly pegged to the dollar [like Argentina] and the other has a floating rate [like Brazil]. The solution would be the creation of a regional currency.