Brazil and China Celebrate Successful Reforms; EU Needs to ‘Reinvent Itself’

Published
24 Jan 2018
2018
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Fon Mathuros, Head of Media, World Economic Forum: Tel.: +41 (0)79 201 0211; Email: fma@weforum.org

· President Michel Temer of Brazil says Brazil is back in business

· China reveals ambitious agenda to reduce financial risk, poverty and pollution

· King Felipe VI of Spain calls for a ‘re-founding’ of the European Union

· The 48th World Economic Forum Annual Meeting is taking place on 23-26 January in Davos-Klosters, Switzerland, under the theme Creating a Shared Future in a Fractured World

· For more information, www.weforum.org

Davos, Switzerland, 24 January 2018 In a special address to participants at the Annual Meeting 2018, Michel Temer, President of Brazil, struck an upbeat note and described a country whose economy has roared back to life in the 20 months since he assumed office. “Brazil is back in business,” Temer said, “and the new Brazil that is back in business… is a more prosperous, a more open country – a country with more opportunities for investment, more opportunities for trade and business.”

Temer noted that inflation, which had reached double digits before his term began, had been brought under control and now stood at under 3%. Interest rates have fallen from 14.5% to below 7%, and foreign direct investment rose in 2017 to $64 billion. “In this short timespan we have succeeded in drastically changing the face of Brazil,” he said.

He summarized the spirit of the current reform programme, which he characterized as “the most serious comprehensive reforms to be implemented in a long time”, with five key words. Responsibility, which he juxtaposed with “false populist shortcuts”, contains both the idea of fiscal discipline and social responsibility. “We’re talking about two sides of the same coin,” he said. “After all, only when public accounts are in shape can there be jobs – [and] can there be budgetary space for social programmes.”

Dialogue, the second key word, he illustrated mainly by pointing to his administration’s efforts to restore a good working relationship between the Executive and Congress.

For his third key concept, improved efficiency, he pointed to revisions to Brazil’s eight-year-old labour law, which he said now protects workers while ensuring legal certainty to employers, and to “slashing” layers of bureaucracy: “Entrepreneurs’ time is too valuable to be spent in queues or at government service counters,” he said.

Rationality, the fourth key word, manifests itself in strengthened and more autonomous regulatory agencies that have adopted new models for privatization and management of state-owned enterprises.

In explaining the fifth of his key words, openness, Temer highlighted the steps his administration has taken to further integrate Brazil into the global economy, citing closer ties with Pacific Rim nations, France, the Republic of Korea and Singapore, and recommitted Brazil to Mercosur, the South American trade bloc.

Similar themes of commitment to reform and deepened global integration were sounded by Liu He, General Office Director of the Central Leading Group for Financial and Economic Affairs, People’s Republic of China, in his address. Liu reiterated the points made at the Annual Meeting 2017 by President Xi Jinping, where he affirmed China’s support for economic globalization.

Liu laid out an ambitious agenda focused on three aims: to prevent major risk in the Chinese economy; to reduce poverty; and to pursue aggressive pollution abatement. In addressing economic risk, China will focus on reducing financial risk through regulation of shadow banking, tackling China’s ballooning local debt, and reducing leverage ratios. While he described China’s fundamentals as sound, noting the high savings rate, he cited the problem of moral hazard – that lenders and borrowers alike face no real consequences for non-performing loans.

China’s campaign against poverty resulted, Liu said, in a reduction in rural poverty from 130 million to 30 million people. China now intends to “basically eliminate absolute poverty in three years” and Liu added that this year alone it will lift 10 million people from absolute poverty.

Liu reaffirmed China’s commitment to the Paris Agreement on climate change: “Green and low-carbon development is what the Chinese people, and people across the world, most want.” He noted China’s reduction in carbon intensity and added that China will further lower the intensity of its resource consumption and “make our development more eco-friendly and our skies blue again.”

Liu noted that in commemoration of the 40th anniversary of the commencement of reform and opening under Deng Xiaoping in 1978, China will introduce further reforms but did not offer specifics. “There is no doubt that to reach these goals, China has to advance reform and opening at a faster pace,” he said. “We will continue to let the market play a decisive role in the allocation of resources.” He added that “we will substantially open up the services sector – the finance sector in particular” to foreign participation.

In addition to the financial sector, Liu said that China would also open up the manufacturing sector. He named shipbuilding, railway equipment and aircraft as sectors where China will “remove or reduce restrictions on foreign investment”.

In another special address, H.M. King Felipe VI, King of Spain, recapped Spain’s recovery since the euro crisis. He told participants that Spain has enjoyed steady growth over the past three years – running current account surpluses for five consecutive years; seeing foreign direct investment flows increase for four straight years; and reducing public deficit by over €70 billion since the financial crisis.

On Catalonia, King Felipe said the secession bid highlighted “the need to preserve the rule of law as a cornerstone of democracy,” and that “political disagreements must be resolved in accordance with the rules laid down in our constitution.”

Reiterating Spain’s commitment to the European Union, King Felipe said, “Europe is not an external project but a complete expression of Spain’s national project.” He noted that the euro crisis, the refugee and migratory crises, and the challenges posed by the technological revolution make necessary a “re-founding of the European Union” that will result in an even more tightly integrated EU. “Europe must reinvent itself and the soul of that new Europe must mirror the soul of its citizens.”

The World Economic Forum’s 48th Annual Meeting is taking place on 23-26 January 2018 in Davos-Klosters, Switzerland. More than 3,000 leaders from around the world are gathering in a collaborative effort to shape the global, regional and industry agendas, with a commitment to improve the state of the world.

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