Transcript Brazil 1Q 2011 GDP Teleconference Call - Guido Mantega
Friday, June 3, 2011 11:30 A.M. EST
Operator: Good morning. The Brazil 4Q 2010 GDP Results Conference Call will start momentarily.
Participants, kindly note the following: If you require assistance at any point during the call, please press “*0” on your handset for an operator. If you would like to ask a question during the Q&A portion of our call, please press “*1”on your handset to join the queue. A replay of this call will be available toll free at 1-800-406-7325 or at 1-303-590-3030 until the close of Tuesday, June 7. Please enter conference ID 4444902 to enter the correct conference replay. In addition, an English transcript of this call will be available within 24 hours. The call will now begin.
Moderator: Thank you operator and good morning everyone. Thank you for joining us for today’s call with Brazil Finance Minister Guido Mantega, who will provide context around, and answer your questions about, the first quarter 2011 GDP figures released this morning by the Brazilian Institute of Geography and Statistics (IBGE). An English-language press release will be issued after this call summarizing the data released by IBGE. We will e-mail a copy of the release directly to all participants on the call. In addition, an English transcript of the call will be available within 24 hours and will be sent to all participants via e-mail.
Minister Mantega will be providing his remarks in Portuguese, followed by an English translation. The same will be true for the Q&A portion of the call. For the benefit of all participants, we ask that you please direct your questions to Minister Mantega in English.
Now I’d like to turn the call over to Finance Minister Mantega. Sir, please go ahead.
Minister Mantega: Thank you, Steve. Good morning to all. I’ll make some short comments on the results of the GDP for the first quarter of this year.
At the first quarter of this year, the Brazilian GDP rose 1.3%, which, analyzed on a yearly basis, would grow 5.4%. That’s the projection. I believe it’s a good growth rate and at the same time it’s sustainable, but there is a sort of slow-down compared to last year.
The highlights for this first quarter would be the agriculture industry that rose 3.3%; the manufacturing industry which rose 2.8%; and the service industry that grew by 1.3%.
As for household consumption, there was a growth of 0.6%, which also shows a slow-down compared to last year. Government expenses have grown up to 0.8%, which is lower than the GDP growth, which is the aim for the government.
The gross fixed capital formation or investment grew 1.2% in this first quarter, showing that we’re managing to keep strong growth in the investment area.
As we can see from the first quarter, the Brazilian economy has already started a cycle of a slow-down in terms of its growth rate. But we took some measures last year that will make the second quarter accelerate the slow-down in the economy.
Also at a much more moderated pace is the credit line, which grew 20.0% in the last quarter last year and this year it has grown 13.0% for the first four months this year, which shows that we are also contracting credit lines.
We can also see a slow-down in the manufacturing industry which had a negative growth in April of 2.1% which also shows slow-down in the industrial sector.
Inflation is going down by all indicators, especially fuel. All fuel prices are going down, including gasoline and ethanol, which went up between seasons for harvest. Food prices are also going down by all means – for any modality of food, all prices are going down. So this makes us believe that in the next months inflation will go down in Brazil.
The primary surplus results also have been very good, showing that our targets are being met and just to April we have reached 50% of our fiscal policy targets in terms of primary surplus.
With the contraction of the credit lines, food prices going down, oil prices and fuel and all these indicators going down and our primary surplus going up, Brazil will manage to keep inflation under control and reach a level threshold of growth that will be around 4.5% for this year.
So I believe that it’s not correct to see the Brazilian economy as overheated. It was overheated last year but for this year, due to all government measures, we’ll manage a different threshold for our growth rate, which will be a sustainable growth rate around 4.0 to 4.5%.
Moderator: Thank you Minister Mantega. We will now open the call for Q&A. Operator, go ahead.
Operator: Thank you, our first question comes from the line of Jeff Fick with Dow Jones Newswires.
Jeff Fick: Good morning, Minister. Thank you for the call today and congratulations on the economic growth that Brazil is showing. I’d like to ask whether the increase in wages that have been seen in the Brazilian economy so far this year, and the fact that the minimum wage will be going up by 14% this year under the new methodology, what impact those wage increases will have on inflation by the end of 2011? Thank you.
Minister Mantega: Actually the minimum wage for this year held 6.4%, so it’s not an actual increase of the minimum wage for this year. We will have an actual increase of the minimum wage for next year according to a formula with the labor federations that we settled with them before.
As for the other salaries in the economy, they had a loss vis-à-vis inflation rates of around 5.5 to 6.0%, so I believe that there will be some realignment of these other salaries outside the minimum salary, but that’s not a concern that these readjustments will impact inflation because they will not be fully readjusted because of past inflation.
What is truly important is that the productivity in the Brazilian economy continues to grow up above salary readjustments. Next question, please.
Operator: And our next question comes from the line of Nadia Pontes with Deutsche Welle.
Nadia Pontes: Thank you, Minister. I would like to have some more details on the number on the agriculture sector. The agriculture sector was mainly responsible for this number that we have on the first quarter so is this due to the high prices of commodities and Brazil as a great exporter? Could you give me some more figures on that?
Minister Mantega: Yes. In fact, the agriculture sector was the sector that grew more in this first quarter. It grew 3.3%. But the agriculture sector’s share of the Brazilian GDP is very small – it’s less than 6.0% – so it’s a relative contributional share of the GDP. Of course, around the agriculture sector there’s a whole chain of the agribusiness sector and it moves around in a very favorable way according to the international markets for Brazilian agriculture products and commodities.
Brazilian agriculture has been growing a lot in the last years. And I believe that in 2011 the Brazilian agriculture sector will continue to show its strength, reaching a record in terms of grain production of above 150 million tons. Next question, please.
Operator: Our next question is from the line of Thierry Ogier with Emerging Markets. Please go ahead.
Thierry Ogier: Yes, good afternoon, Minister. It’s a pleasure to talk about the strong growth in Brazil again.
I have a question about the conversations regarding the IMF: The South Africans said yesterday that there are still talks going on about choosing a common candidate from emerging markets to succeed Dominique Strauss-Kahn. You’ve met with Ms. Lagarde and Mr. Agustín Carstens this week, so I would like to know what is your position now; if you think we can have a common candidate from the emerging market countries for the IMF? Thank you.
Min. Mantega: We have been talking to many of the candidates that are presenting themselves, such as Madame Lagarde and Agustín from Mexico, and now we’ve heard of the new candidacy from South Africa.
We believe that it’s very good having many candidates because what is truly important is that the one that will lead such a position should give continuity to the reform policies that we’ve been undertaking that we wish to happen for the IMF.
For us it’s very important, within the reforms of the IMF, that the way to choose the new managing director should not be a choice by nationality but a choice based on merit, on competence. That’s how we see it. I believe that we will overcome this very old rule that the choice should come from a European country.
I believe that we will continue to screen and examine the list of candidates, looking for the one that best suits what we believe should happen for the future of the IMF, which is an IMF that will be more open to all countries, especially the emerging countries.
That new Managing Director should give continuity to all the reforms that we believe the IMF should undertake, especially the ones of building new policies and not following any more their traditional orthodox policies of the past.
It’s very important that the IMF should continue to approve more flexible credit lines as the one that was passed very recently. The IMF should also support, when necessary, anti-cyclical fiscal policies when government spending has to increase to continue to boost the economy. And I believe that the oversight role of the IMF should be more focused on the advanced countries and not as it used to be, traditionally, just the oversight was very tight on the developing countries because the economic imbalances that we see in the world today are coming more from the advanced countries, developed countries, than from the developing countries. And finally, the IMF also should agree on certain policies that were undertaken such as the one on capital control flows which was undertaken by some governments to avoid the over-appreciation of their local currencies. That was a policy that the IMF did not accept in the past, capital controls.
Operator: Thank you, our next question does come from the line of Daniel Horch with Market News International.
Daniel Horch: Hi, Minister. I was wondering what your estimate is of the long-term structural rates at which Brazil’s economy can grow without overheating?
Min. Mantega: Our perspective is that the Brazilian economy can undertake a growth of 4.5 to 5.0% in a sustainable way for the next years. Since 2011 is a year that we’ll have to make some adjustments, the growth rate will be slightly lower. But for the following years, I believe that we can go back to a higher growth rate around 5.0% a year.
First of all, what is truly important is that this growth should happen within a scenario of a sound fiscal policy and with inflation under control. Brazil has been one of the very few countries that have abided to its inflation targets in the last years. And once again, for the year 2011, we will fulfill our inflation targets.
Next question, please.
Operator: Thank you, our next question comes from the line of Alfredo Coutino with Moody’s.
Alfredo Coutino: Yes. Thank you very much. Mr. Minister, if we look at the annual growth rate of the first quarter of this year compared with the first quarter of last year, it is clear that the Brazilian economy is in a deceleration process. Can we think that this deceleration is basically generated by restrictive policies – in terms of fiscal policy, monetary policy? And if so, it is possible that the Central Bank will continue to tighten monetary conditions in common bonds since the economy is already at around 4.0% annual growth, so probably tighter monetary conditions will depress more domestic demand and at the end that will reduce economy growth for the year? I would like to hear your comments on this. Thank you.
Min. Mantega: In fact, you are right. The Brazilian economy is undergoing a trajectory of deceleration.
And the reasons are, first, our new fiscal policy has increased the threshold of our primary surplus from last year to this year. A much more restrictive monetary policy is the second reason. The policy has raised the interest rate, it has increased the macro-prudential measures, and it is tightening the credit lines, or credit expansion.
I believe that we will continue with these policies with this trajectory so that we can reach at the end of this year a growth threshold of 4.0%. Now if the Central Bank is going to undertake additional measures, that is something that the Governor of the Central Bank should answer and not me. Next, please.
Operator: All right, we have a follow up question from the line of Thierry Ogier with Emerging Markets. Please go ahead.
Thierry Ogier: Yes, Minister. I just want to clarify: do you think Brazil will support any candidate come from South Africa such as Mr. Trevor Manuel?
Min. Mantega: Brazil will examine very closely all the candidates that are presenting themselves till the tenth of next month, I believe, and we’ll make our decision according to the competence of the candidate, their views and merit, and the fine tuning that they will have with Brazil’s perspective in terms of the future of IMF.
It’s very important to install a strong commitment on the continuity of the reforms on voice and quota systems at the IMF so that we make the IMF more representative vis-á-vis the emerging countries. We have no objections whatsoever vis-á-vis any nationality, and of course we welcome any candidates from emerging economies, but it’s necessary that they should fulfill these prior requirements and conditions that we have established before.
One more question, please.
Operator: Our next question is a follow up from the line of Nadia Pontes with Deutsche Welle.
Nadia Pontes: Thank you. Minister, would you think that Brazil could help IMF towards those reforms with a Brazilian name for example?
Min. Mantega: I believe that Brazil has the competence to present many candidates for other positions at the Board of the IMF; as heads of divisions or departments, and Deputy Managing Director, and so on. But for the position of Managing Director, we, at this moment, will not present a candidate of our own. Thank you very much.
Moderator: Well thank you. This concludes the Q&A portion of our call. Once again, thank you all for participating in this event. You will all be receiving an English transcript of this call within 24 hours. If you have additional questions, please feel free to contact Jennifer Yang at firstname.lastname@example.org.
Operator: As a reminder, a replay of this conference will be available toll free at 1-800-406-7325 or at 1-303-590-3030 until the close of Tuesday, June 7. Please enter conference ID 4444902 to enter the correct conference replay. In addition, an English transcript of this call will be e-mailed to you within 24 hours. Please e-mail Jennifer Yan at email@example.com with any additional questions. Thank you for your participation. You may now disconnect.
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