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The effects of postponing the necessary tax reforms in the country, such as social security, can be seen in Argentina, says Claudio Irigoyen, head of the Latin American economy and strategy at the Bank of America.
The country (19659002) Irigoyen thinks that some changes in pensions will be approved in Brazil and that the project will be fundamental to the maintenance "
" The year will depend on the reforms, not necessarily of the I & # 39; approval, but hope that we are going in the right direction. "
The bank expects growth of 3.5% in 2019. Projections for 2018 3%, but the year is expected to end with just over 1% of GDP. [19659002] "An important variable to check if our projection will materialize is the evolution of trust," he said. [59002] Irigoyen also said that Congress was the big "if" for the year. approval of the reforms and that everything would depend on the ability of the Bolsonaro government to form a coalition. "This is certainly the debate that the government has right now on how to form coalitions."
A year ago, mr. said that the country could not afford not to grow, but ended the year 2018 with an advance slightly above 1% I would not say that something went wrong at the Brazil, but at a global level. We began to have a dissociation of growth between the United States, China and Europe and the Fed has been shown more aggressive upward [de juros]. This put a lot of pressure on capital flows in emerging markets. Obviously, countries with larger imbalances, such as Argentina, suffer more, but Brazil is not immune.
The escalation of the trade war has not helped, and then you have the presidential election. It was a very polarized election, unsurprisingly that did not help. But I would say that the most important factors have been the rise in interest rates in the United States and the trade war.
By 2019, the bank expects growth of 3.5% if reforms are approved. Mr. Do you believe that will happen? We believe that the independence of the Central Bank is likely to be approved and our basic scenario is that a pension reform will be completed. At this point, the government is trying to determine what is the best strategy, whether it is to approve a swift and gradual reform or to launch a more ambitious reform.
I do not know if we will have time to proceed with tax reform as well. But if we have at least the first two, we will create an environment conducive to growth.
And without the reforms, what is the growth that can be expected for Brazil? It is difficult to say why we do not have a scenario without reforms. Congressional debate may have delayed reforms, but it does not appear that Brazil has the leeway to approve them.
But what would be the percentage growth of the economy? It is difficult to give a figure after the recession, which accounted for 8% or 9% of GDP in two and a half years. We have a lot of room for maneuver for the recovery, which should come more for consumption and for some investments than it is no longer possible to postpone. In case of resumption of consumption, it is necessary to have a positive dynamic of confidence.
I think trust will prevail when the markets realize that the government has the power to approve the reform. And trust will suffer if there is any doubt about it. The evolution of trust is an important variable to check if our forecasts will materialize.
Could an escalation of the trade war between the United States and China affect projections for the country? For now, we have the impression that the trade war will go out of steam, especially after the announcement of the 90 day truce.
An escalation of the trade war is bad for the whole world. In the case of Brazil, the country could have a mattress for the worst case scenario by redirecting imports from China, from the United States to Brazil. But that would benefit in a worse scenario for everyone. I think the main problem of escalating trade war is that it will affect confidence, trade and global growth.
Optimistic investors predicted that the Brazilian stock market would close the year close to 100,000 points, but we are trapped below 90,000. a relatively rapid reform of social welfare and the approval of the central bank's independence are in price. If this is confirmed, we should have a good rally. And if that opens the door to tax reform, I think the recovery could be more important. This scenario considers that there will be no worsening of the external environment.
The current stability results from the deterioration of the external sector and the fact that some local investors have made profits [embolsaram]. And also because foreign investors are not involved, but they can not lose the rally in Brazil and expect a good entry point.
The market began to predict that the interest rate in Brazil would remain stable for some time. bigger. What are the forecasts for BofA? We do not expect too much interest. If that happens, it will be the end of the year and a little modest because the dynamics of inflation is good. You can blame the recession, but it does not matter now.
But some badysts have begun to forecast reductions. It's an extreme that does not make much sense because the economy will start to turn better. So, why would you want to reduce interest rates? Inflation is already low, but it is probably on a low floor. I think the most sensible thing is to expect the Central Bank to be cautious, because the focus will be on reforms and the last thing you can do is introduce noise into the discussion .
waiting for the Bolsonaro government? From the point of view of the administration, there is no doubt that it is the right way. The quality of the team is amazing. Paulo Guedes is from the Chicago School and I went to the same college, so I have to say that he is good [risos]. Joking aside, the staff is fantastic. Unfortunately, sometimes having a good team is not enough, you do not have total control of the whole country.
And the Congress? This is the big "if". The government is discussing how to form coalitions. Politics is the art of negotiation.
But it is so obvious that Brazil has no leeway to delay reforms, which does not worry me. I am more concerned about countries like Mexico, where there is fiscal room for populist and distributive measures. In Brazil, no. Or you make reforms or you will have problems.
And how do you evaluate the Argentine economy? Argentina is another name for the problem. They have adopted a difficult monetary policy, but this year they have presidential elections and it is very difficult to start an election year and tighten monetary policy.
Polls indicate that Mauricio Macri [atual presidente] and Cristina Kirchner [ex-presidente] are tied. It will be an election of questioning, to say the least. And Macri clearly chooses a strategy of polarization with Cristina because it seems that he does not have much to show in economic terms.
How does the bank see 2019? I think that next year the focus will be on these three countries: Brazil, Mexico and Argentina. In the case of Brazil, the important thing is that reforms be undertaken. And, looking at what might happen if you delay tax adjustment, a good example could be Argentina.
In Mexico, the big test will be that the United States is slowing down because the pressure for stimulating measures will be stronger there.
Claudio Irigoyen, 48 years old
Graduate in Accounting from the National University of Rosario, Argentina, he holds a master's degree and a Ph.D. in economics from the University of California. University of Chicago. was chief economist and director of monetary policy of the Central Bank of Argentina for five years
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