Posted on 2011-10-05
Questions asked by Senator Suzanne Fortin-Duplessis on October 5, 2011.
Proceedings of the Standing Senate Committee on Foreign Affairs and International Trade
Chair: The Honourable A. RAYNELL ANDREYCHUK
Wednesday, October 5, 2011
Thursday, October 6, 2011
Issue No. 2
Third and fourth meetings on:
Study on the political and economic developments in Brazil
Wednesday, October 5, 2011
Brazil-Canada Chamber of Commerce:
Eric Bonnor, Chairman;
Eduardo Klurfan, Vice-Chair
Thursday, October 6, 2011
SNC Lavalin International:
Elias. G. Ray, Senior Vice President — Latin America.
Jim Rakievich, President and CEO.
Canadian Manufacturers & Exporters:
Jean-Michel Laurin, Vice President, Global Business Policy.
Kristine Burr, Assistant Deputy Minister, Policy;
MEMBERS OF THE COMMITTEE
The Honourable A. Raynell Andreychuk, Chair
The Honourable Percy E. Downe, Deputy Chair
The Honourable Senators:
*Cowan (or Tardif), De Bané, P.C., Finley, Fortin-Duplessis, Johnson, *LeBreton, P.C. (or Carignan), Mahovlich, Nolin, Robichaud, P.C., Segal, Smith, P.C. (Cobourg), Wallin
* Ex officio members
Changes in membership of the committee:
Pursuant to rule 85(4), membership of the committee was amended as follows:
The Honourable Senator Segal replaced the Honourable Senator Smith (Saurel) (September 30, 2011).
Senator Fortin-Duplessis: I would like to tell the witnesses how informative their statements were. I found the answers to my colleagues’ questions very revealing. I will try to keep it brief, as per the chair’s request. I have two questions.
First, Brazil has an inflation problem. And to curb that inflation, aside from the steady raising of interest rates by the central bank, one of the first decisions that new president Dilma Rousseff made was to implement a $31-billion austerity plan.
Do you think the goal of having lower interest rates will be reached?
Mr. Bonnor: To make sure I understand the question, are you wondering if Rousseff will be able to tackle inflation, particularly with regard to an austerity plan of $30 billion that was recently put in place? There are a lot of different factors in play.
I was at a conference recently in Calgary, a CFA wealth management seminar, and a U.S. consultant came forward and said she is playing a tight game. The issue really is that they have a shortage of labour. They have all these investments that need to be made, and agricultural products and commodities at a relatively high price. You have the question of whether they can direct the capital that is coming into the country in an efficient manner.
Because their structures are not well-organized in terms of getting that capital deployed within the country, there is a lot of leakage. Because of the confusion in the financial market with what is going on in Europe, they see this as an opportunity to take inflation down a notch. They are looking to reduce interest rates, but the jury is out. I think it is a question that many people are preoccupied with. I think in the minds of many investors and analysts, inflation is likely to increase with the actions that they are taking about. A lot of different factors are in place today. It is difficult to say where it will go.
Mr. Klurfan: It has been the policy of Brazil, since the government of Fernando Cardoso and the fiscal discipline legislation, that inflation will be dealt by the central bank by using interest rates. This was a big dispute between the Labour Party and the parties right of centre during the Lula government. They wanted more populist measures, and that was reducing interest rates so consumers could spend more. The government had to live with that philosophy. Mr. Meirelles, as president of the central bank, had put a very tight line that they will continue to manage inflation by interest rates. Interest rates are high in order to reduce inflation, because consumption is a big part of the Brazilian economy and a component of GDP and a player on inflation.
Mr. Bonnor: The reduction of interest rates that has recently taken place would go contrary to that and inflation likely would increase. I believe what they are hoping is that the world will be so distracted with other things going on that there will not be the pressure they might have had in a different circumstance if everything was going well. We will probably see that play out in the next six months, and that is a question I certainly will probably ask Henrique in the next couple of weeks when he comes up to Toronto.
Senator Fortin-Duplessis: My second question is this: We know that Brazil’s growth rate was revised downward. Brazil’s finance minister projected a growth rate of 4 per cent, but according to Morgan Stanley analysts, the country will not exceed 3.5 per cent. Last year, Brazil’s growth rate hit 7.5 per cent.
At the same time, India’s and China’s growth rates are supposed to reach 7.4 per cent and 8.7 per cent, respectively.
What do you make of the rates? Does 3.5 per cent strike you as sufficient for the new president to carry out all the projects she has planned?
The Chair: We are coming to the time for the bells to ring — and it is not my agenda; it is the Senate’s agenda — and we are going to be cut off in a few minutes. Perhaps while you are contemplating the answer, Senator De Bané could put his question to you. Then you will have whatever time is left to answer both.
Senator De Bané: In view of the constraints, I will go with one question.
This committee has been, with your help and a great number of witnesses, doing our study. I can give you one summary that I got myself from all the numerous experts. Brazil desires deeper relations with Canada and is seeking Canada’s counsel on several issues. The appointment by that country of consistently strong and high-quality ambassadors to Canada is notable in this respect. They desire that, and they look to Canada as a departure point for assessing the U.S. market.
Then we have a very long list of obstacles to deeper engagement with Brazil. It goes from lack of media coverage of Canada in Brazil, lack of substance and past initiatives, poor track record of implementation, and our stronger presence in Colombia, Peru, Chile, et cetera.
There are a great number of obstacles, yet it is a country that we should look at more as equal to us and where we should do business with them, where both countries would mutually benefit. Essentially this is the overall picture. Would you agree with that assessment? I am giving it in stenographic form.
The Chair: It would be helpful if you could say yes or no.
Senator De Bané: In stenographic form, we should not look to them as a developing country but equal partners and let us have joint ventures together. Would that be the right approach?
Mr. Klurfan: I will address the first question.
Brazil has grown in GDP on average for the last 20 years, before this the last 10, at 2.3 per cent per annum. It is very slow growth. It has increased its growth at the levels we have seen, and we are in the midst of a global or what we can call a crisis of the northern countries, and it has not affected Brazil that much, but Brazil is a trading country and depends on the other economies. It will feel the effects and slow down on its growth.
China is feeling the same. It will not grow at 10 per cent; it will grow at 8 per cent. India is the same. The growth will slow down a bit, but for Brazil it could be a blessing in disguise because the infrastructure has to be there to absorb that growth. The install capacity at the factories is coming to their limitations and they need to be able to invest more to be able to live with that growth and continue with that growth. Right now it may not be a bad thing if things slow down, cool down a little bit, the infrastructure projects will maintain the economy also up, and I will see a further period of growth in Brazil that will go to levels above the 4 per cent.
I am not an economist, so I do not have to say on one hand and on the other hand.
Senator De Bané: I would like you now to answer my question, because that answer was not related to me.
The Chair: Senator De Bané, there were two questions. One was answered first for Senator Fortin-Duplessis. Mr. Bonnor is going to answer yours, I understand.
Mr. Bonnor: I would say that yes, I agree with your statement. I would say that the chamber probably would also agree with it, and the question really is that we have an opportunity on the table today in terms of a relationship that is now moving forward that has been stuck for 10, 15 years going nowhere. We need to take advantage of it and do exactly what you say. We need to take those points where they are looking for help. We need to come back to them and say we have some issues we need to resolve as well and go to it. I think there is goodwill on both sides to make that happen.