MercoPress. South Atlantic News Agency

Brazil announces 16bn dollars plan to prop industry and weaken the Super Real

“Measures are a good start” said Sao Paulo Industrial Federation President Paulo Skaf

A package of tax breaks and incentives unveiled Tuesday by Brazilian president Dilma Rousseff represent a good start to help local companies overcome competitive challenges presented by adverse local and global economic factors, but still fall short of what's needed, Brazilian industrial leaders said.

Speaking on the sidelines of the government's announcement, leading local industrial-sector officials said they would continue to push for more actions to overcome the effects of local competitive hurdles and the strong local currency, Super Real.

“These measures are a good start” said Sao Paulo Industrial Federation President Paulo Skaf. “But they're still far from resolving the problem of competitiveness that's been robbed by the strength of the currency, problems with local infrastructure, and the lack of approval of economic structural reforms”.

Brazil's government on Tuesday unveiled a broad range of measures under then ambitious heading of “Bigger Brazil” to help manufacturers cope with adverse competitive conditions, including some 25 billion Brazilian Real (approx 16 billion dollars) of tax incentives over the coming two years, as well as some specific measures to aide labor-intensive industries including textiles, footwear, software and vehicles.

Skaf said he believed the government needed to also extend measures to other sectors to further bolster the local economy.

“Time will show a need to augment these measures and extend them to other sectors because all industrial sectors deserve attention and incentives” he said.

In addition to short-term tax incentives, Brazil's industry has long clamored for an overhaul of the country's tax system and a reduction of local interest rates to make local products more competitive and diminish a flood of overseas capital that in recent years has bid up the local currency.

Still, other industrial leaders present at the announcement said the sector would have to accept what was possible in the short term to buffer against dramatic recent losses in competitiveness.

“My dream would be to have a strong dollar and low local interest rates, but these things will have to be resolved over time,” said Robson Andrade, president of the National Confederation of Industries, or CNI. “In the meantime, some local sectors are still thriving despite adversities, so we need to help those that are struggling.”

According to a CNI industrial survey released Monday, nearly half of local export industries reduced or eliminated their export activities in 2010 due to the effects of a the Super Real and weak overseas markets. A further 24% said they believed they could lose further export sales in 2011.

Still, others present at the event Tuesday said that although longer term local reforms such as tax and pension reforms might be welcome, the country couldn't afford to be trapped in the grip of inertia while local industries suffered.

“We can't fail to take short-term measures while we are waiting to formulate structural reforms,” said Paulo Godoy, President of the Brazilian Infrastructure Industries Association, or Abdib. “We need to react to ever-growing overseas competition from countries such as China.”

Under the impact of heavy international liquidity, Brazil's currency, the real, has strengthened more almost 50% against the dollar since early 2008. Local industries have complained that the strong real has sapped the attractiveness of Brazilian manufactured goods abroad and helped inundate the country with a flood of cheap imports, mainly from Asia and China.

On announcing the package President Dilma Rousseff said that today more than ever “it is imperative to protect Brazilian industry and our jobs from unfair competition and the currency war, which hurts our exports and, worse, affects our domestic market“ with a flood of imports”.

Finance minister Guido Mantega who coined the “currencies war” expression pointed out that in a “predatory, competitive world stage” the package should help contain ‘the currency manipulation by larger economies’ that has hurt the Brazilian economy and exports.

Finally more specifically on the imports side, Industry and Foreign Trade Minister Fernando Pimentel said the plan calls for “zero tolerance for any kind of fraudulent importation, counterfeiting or piracy of origin” and emphasized that “we shall defend our local production, our domestic market”.