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Further reforms to spur trade and investment key for Brazil’s inclusive growth

MD Staff

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Brazil is emerging from its long recession and is headed for solid growth in 2018 and 2019 as recent structural reforms start to bear fruit. Sustaining this recovery, unleashing Brazil’s full economic potential and spreading the benefits fairly will require additional efforts to rein in public spending, increase trade and investment, and further focus social spending on those most in need, according to a new OECD report.

The latest OECD Economic Survey of Brazil says that deepening reforms to strengthen institutions, improve business regulation and reap the benefits of tighter integration into the global economy could lift GDP by at least 20% over 15 years, which would boost household incomes and help compensate for the economic drag of a rapidly ageing population. Better targeting of welfare spending on the poorest households would be crucial for fostering inclusive growth.

“Brazil is back on a positive growth path, but there is no time for complacency,” said OECD Secretary-General Angel Gurría, presenting the Survey in Brasilia. “With the demographic dividend now over, getting the economy fully back up to speed will require greater investment, higher productivity and closer integration into the global economy. For this, Brazil needs to continue on the path of active structural reform to ensure the sustainability of its fiscal accounts and the inclusiveness of its growth”.

The Survey says Brazil is foregoing the benefits of integration into the world economy due to a trade policy that has prioritised safeguarding domestic markets over facilitating access to foreign markets. Brazil has especially high tariffs on intermediate and capital goods, and non-tariff trade barriers such as local content rules and anti-dumping measures are widespread.                    

Lowering trade barriers would make Brazilian firms more competitive by allowing them to source inputs at lower prices. This would boost trade volumes and raise productivity and wages. It would also reduce prices for consumers, in particular low-income households.

Investment, already low compared to other Latin American and emerging economies, has declined in both real terms and as a share of GDP in recent years, weighing on the overall economy and adding to existing infrastructure bottlenecks. Reversing this trend will require concrete actions to improve infrastructure planning, open up new sources of finance, reduce administrative burdens, simplify taxes, and streamline licencing. Continuing to fight corruption with reforms to increase accountability would also help to draw investment and restore citizens’ trust in institutions.

On public finances, the Survey warns that without a significant reform of mandatory public spending, Brazil’s fiscal accounts risk becoming unsustainable. To promote growth that is more inclusive while achieving fiscal targets, a comprehensive pension reform is the top priority for Brazil in the short term.

The Survey also recommends improving the allocation of social spending, much of which benefits middle-class households, to firmly target those most in need. For example, Bolsa Familia is a highly effective scheme but only accounts for 0.5% of GDP out of the 15% of GDP that goes to social spending. Shifting more resources towards this scheme while reforming other transfer programmes would help to decrease inequality and poverty.

Transfers to private companies, including through tax reductions, have risen strongly in recent years, creating fertile grounds for rent-seeking behaviour and political kick-backs without halting the substantial decline in investment.

As Brazil works to strengthen public governance and improve accountability for public spending, the OECD is also launching on the occasion of the Secretary-General’s visit to Brasilia a new 3-year project with the Tribunal de Contas da União, Brazil’s supreme audit institution, aimed at strengthening its capacity to improve the effectiveness and evidence base of policies and programmes in areas such as education, health and security.

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Americas

Of Dissemblers And Dismemberers

Dr. Arshad M. Khan

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The maliciously mocking, malevolent, maladroit, misfit, malappropriating the White House got his comeuppance this week … at least for a while.  Senator Elizabeth Warren released her DNA test results conducted by noted Stanford University expert Professor Carlos D. Bustamente.  The results prove a Native American ancestor six to ten generations ago, supporting her claim that her great-great-great grandmother, O.C. Sarah Smith was at least partly Native American.

Donald Trump who mocks her as ‘Pocahontas’ had this summer upped the ante by his offer to pay $1 million to a charity of the Senator’s choice if she took a DNA test.  She has, and she has named the charity, the National Indigenous Women’s Resource Center, which protects Native American women from violence, including sexual violence.  The onus is now on Mr. Trump to make good his word.

Of course he is not going to.  Somewhat lacking in grace, Mr. Trump says he will pay the $1 million only if he can test her personally.  Later, he also disavowed the offer.  And so it goes on … vintage Trump.  Suppliers to his businesses also had great difficulty getting paid.

By the way, he did say when he made the offer that he would toss the  DNA kit to her gently as it is the #MeToo generation, etc.  But most people would consider that to be theatrics, not literal.  Perhaps Senator Warren ought not to have bothered … it is almost impossible to win a facts contest against the dissembler-in-chief.

Remember the birther movement when Mr. Trump insisted President Obama was not born in Hawaii or anywhere in the U.S., thus ineligible for the presidency.  When proven wrong, he did a quick turnaround, blaming Hillary Clinton falsely for starting the whole birth issue.

There should have been more serious issues occupying President Trump.  Jamal Khashoggi, a Saudi dissident and journalist posting a monthly column for the Washington Post, disappeared after he went into the Saudi Consulate in Istanbul to sign some divorce papers.  He expected to be about ten minutes according to his Turkish fiancee waiting outside.  He never reappeared.

Imagine a country in the 21st century, an absolute monarchy, and a de facto ruler so thin-skinned that he has a critic silenced, not by wit or sophistication, but by turning a consulate into an abattoir.  The chief butcher, a forensics man holding a senior position in the country’s Interior Ministry slaps on earphones to listen to music and advises the onlookers to do likewise while he dismembers the body.  The hapless Khashoggi first had his fingers cut off while alive, presumably as symbolism for his writing.

The remains were then stuffed into diplomatic bags immune to customs inspection, and the 15-man hit squad flew home in their private jet.  The latter acquired from an airline shut down earlier.  Or, did they bury their gruesome opus in a forest outside Istanbul?  Forensic technicians are searching.

How did the Turks piece up the story.  They have a tape recording, presumably because they had the place bugged — a 20th century practice the hit squads’ master never suspected.  Perhaps it is what happens when the methods are medieval.

The world is revulsed and nauseated.

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The future of Russia- Mexico Relations

Kester Kenn Klomegah

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Mexico has impressive bilateral relations with the Russian Federation. During the last decade, Mexico has been exploring new opportunities with its partners in this part of Europe, in particular, with Russia. In this interview, Ambassador Extraordinary and Plenipotentiary of Mexico to the Russian Federation, H.E. Norma Pensado Moreno, talks about the key priorities, challenges and the economic changes that could possibly influence future bilateral directions of Mexico-Russia.

What are your Government’s priorities in and expectations from the Russian Federation?

Mexico´s Government issued new objectives of foreign policy; one of them is building stronger relations with our partners beyond North America. In this endeavor, Eastern Europe plays a key role. Moreover, due to its dynamism during the last decade, Mexico has a special interest in exploring new cooperation opportunities with its partners in this part of Europe, in particular with Russia.

For Mexico and the Russian Federation, there is great potential in their bilateral relationship. In 2017 and 2018, considerable progress was made in its political dialogue and cooperation in various areas, but a real deepening still remains, mainly in the economic field, in order to match the size of its economies, being both among the 15 biggest in the world.

Both countries are of decisive importance in their respective regions. Within the group of Latin American countries, Mexico occupies an important place for Russia’s foreign policy agenda. For Mexico, Russia is a country with high political, scientific, cultural, energy, tourist, investment and commercial potential.

The bilateral dialogue between the two countries has focused on the Mechanism of Political Consultations, official reciprocal visits, exchange and cooperation (educational, cultural, scientific and technical), energy, economy, trade and tourism. Mexico and Russia agree on positions in many International Forums and on principles such as the promotion of multilateralism. In this context, they have prioritized the issues of international security, the pacific use of cosmic space, the fight against drug trafficking and transnational crime.

The bilateral relationship is in a very good dynamic, due to the presidential meetings in BRICS and APEC summits, as well as the meetings of foreign ministers, in August and November of 2017. The celebration of the V Joint Commission of Cooperation in Culture, Education and Sports took place last February after many years, and the VI Economic Commission Mexico-Russia is expected to take place during 2019.

In short, our Government priorities and expectations are to continue and deepen the cooperation Mexico and the Russian Federation have both in our bilateral relationship in all areas and in the multilateral agenda, as well as to exploring new cooperation in areas such as energy and telecommunications, in which Russia has strengths.

Do you have the same business agenda in other ex-Soviet republics where you are accredited?

I am also accredited as Ambassador to Armenia and Belarus. Overall, Mexico’s business agenda is similar in the three countries. We want to expand trade, promote investments and connect our business community to their counterparts in these countries through the organization of business missions and participation in commercial promotional events. It is also a common goal in the three countries to promote Mexico as a tourist destination.

However, we have also set specific goals based on the prospects identified in each country. Russia is a big country and it represents a wide scope of opportunities. In the case of our Armenian counterparts, we have talked about the many opportunities in the IT and renewable energies sectors. As for Belarus, we are aware of its potential in the production of tractors and agriculture machines as well as in its new industrial technologies. We need to do some work to translate this flow of information into real opportunities that can be explored by our business communities.

Could you please discuss the level of Russia’s economic engagement in Mexico? Is your Government satisfied with Russia’s investment interest as compared to, most probably, other foreign players in Mexico?

Both Russia and Mexico are conscious that there is significant room to grow in our bilateral economic relations given the size of our economies and the possibilities of complementarity. We want to increase economic exchanges and investments.

That said, I want to highlight that Russia has made significant steps regarding its economic engagement in Mexico. It is Mexico’s most important investment partner among Eastern European countries, with a total investment of $20.9 million between 1999 and 2017. There are Russian investments in more than 80 Mexican companies, in fields such as transportation, hotels, and mining.

In June 2017, as a result of Mexico’s public tender process in its oil industry, Lukoil was awarded an exploration and extraction contract in the Gulf of Mexico. In March 2018, the company announced that, in consortium with the Italian company Eni, it had been awarded another contract. This consolidates its presence in Mexico since it started to cooperate with Pemex in 2014.

Last year Minister of Trade and Industry visited Mexico heading a business delegation in sectors such as aerospace, automotive, equipment and energy. And this October, the Deputy Minister of Trade and Industry also went to Mexico with a delegation of companies in the construction sector. I can thus say that we see a positive trend in Russia’s engagement in Mexico and we hope it will remain.

On the other hand, how does Mexico engage Russia? How do you view the possibility of effective trade exchanges between the two countries?

Mexican investment in Russia is also growing. In 2017 Gruma, one of the biggest producers of tortillas and other agro products opened a plant in the Moscow region with an investment of $50 million. Other companies with presence in the country are Kidzania –with an entertainment center in the Moscow region- and Nemak –with a manufacturing center for automotive components in Zavolzhie, near Ulyanovsk. Also, the Mexican air company Interjet has acquired several Russian-developed units, the Sukhoi SuperJet-100.

In addition, different Mexican governmental agencies have been encouraging Mexican producers from the agricultural sector to explore opportunities in the Russian market. As a result, representatives from more than twenty companies have visited Russia in the last four months to get acquainted with potential partners. We had a big delegation in Moscow last June, within the framework of the FIFA World Cup, and the second one in mid-September, which attended the World Food fair in Moscow.

Therefore, I can confidently say that there is keen interest from the Mexican side to strengthen its economic ties with Russia. Our goal is to translate all these steps into a substantial growth in trade exchanges.

How is Mexico’s tourism business developing in Russia? Are the number of Russian tourists increasing compared to the previous years? What strategies have you adopted to further popularize your country’s recreational destinations?

One of the main priorities of the Government of Mexico is tourism. Thanks to the efforts of our government in this area, in 2017 Mexico ranked sixth in the world in reception of foreign tourists, according to the World Tourism Organization, with almost 40 million visitors (39.3 million). Out of this amount, only 37,300 Russian visitors entered Mexico by airplane (an increase of 21.5% in comparison to 2016); it means less than 0.1% of all the tourists we received last year; even if it is increasing, it does not correspond to the importance of Russia in the world.

We strive for having again the numbers we had in 2013 when almost 108,000 Russians visited Mexico. The good news is that in the first 8 months of 2018, Mexico received more Russian visitors than in the whole 2017. If this trend continues we will receive more than 50,000 Russian tourists at the end of the year -something not seen since 2014-, it means almost 65% more than two years ago.

For the coming years, we are confident that the number of Russians who will visit Mexico will continue increasing thanks to the actions implemented by the Government of Mexico to popularize my country in Russia, among them:

1) the organization or participation in events aimed at the main Russian tour operators; 2) the participation in tourism exhibitions in Russia;

3) the publication of brochures or information in Russian language including the version in this language of the Website of our Tourism Office, which will be in force in the next weeks.

In this framework, a key role play the recent visit to Russia of more than 45,000 Mexican football fans to attend the World Cup who brought with them our “Fiesta”, something that Russians liked very much and has motivated them to visit Mexico in the near future.

What are views about economic changes in Russia and the Eurasian region? And how would the changes possibly influence future directions in economic cooperation in Mexico?

We closely follow the economic developments in Russia, Armenia, and Belarus, including the regional integration efforts within the Eurasian Economic Union. We are aware of the challenges the countries are facing, but also of the opportunities that are being open. We want to focus on the opportunities. As I mentioned before, the interest in deepening economic relations is mutual and is growing. We will carry on with the work that has been done in the last years.

In the case of Russia, we have still to agree on a date for the next meeting of the Economic Intergovernmental Commission, which will be key to strengthen our cooperation framework. Experts from the two countries are engaged in processes that we hope will lead to the reopening of the Russian market for Mexican beef and seafood products. The trends are very positive, and we can remain optimistic in that regard.

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Venezuelan refugee crisis and how it is altering the surrounding regions

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Venezuela’s migration crisis has been in the news lately and recent UN polls show that nearly 2.3 million have already migrated from their homeland over the past few years. However, other estimates show a figure closer to four million Venezuelan immigrants.

This crisis is rapidly sinking its claws in the neighbouring countries and if the amount of people migrating keeps increasing, it might become the worst man-made disasters since the First and Second World Wars after the Syrian refugee crisis. The Syrian crisis gave birth to more than six million refugees, and although the number here is still around half of that toll, the Venezuelan crisis doesn’t seem to be slowing down anytime soon. The inflation over there is nearly a million percent – a number so absurd that the common people around the world are not able to even grasp the sheer magnitude of the situations developing every day in this country. The minimum monthly wage is a few American dollars, putting essentials like food – particularly rations like chicken – into the category of luxurious items. The economy has shrunk by half in five years. To explain the extent of this downfall, Girish Gupta – founder of Data Drum and former investigative, multimedia journalist in Venezuela/LatAm – tweeted: If you’d bought a million dollars in Venezuela’s local currency when President Nicolás Maduro came to power in 2013, it’d now be worth $3.40. Diseases that were once overcome – like measles and diphtheria – are making a comeback. Infant mortality rates are going up while approximately 1.3 million refugees who have already escaped Venezuela were suffering from malnourishment (according to UN officials).

However, these are not the last of the Venezuelans’ problems; the nations to whom the refugees sought to escape to are closing their doors on their faces – literally. Sunday saw Ecuador closing border crossings with Colombia to people who don’t have passports. This was seen as a certain way to reduce the bulk of refugees from entering other countries as passports are fairly difficult to obtain amidst the economical and political chaos. Jonnayker Lien, a migrant standing outside the Peruvian border with his entire family said, “Imagine people like us who have sold everything, down to our beds, to come here, and they close the door on us. We don’t know where to sleep, and we don’t have money to go back.” Crisis broke out in the town of Pacaraima, north Brazil, after local throngs started struggling against the refugees and pushed them back to the border. Already a penurious town, the locals resent sharing their remaining resources with these migrants. However, even a strong military force could not stop these migrants from coming into Brazil. Peru had twenty thousand migrants arriving in the past week.

An emergency regional summit has been called by officials from Ecuador where Venezuela and its neighbours could deal with the crisis. Yukiko Iriyama, a representative in Colombia for the U.N. refugee agency said, “The capacity of the region is overwhelmed. The magnitude of the situation really requires a regional comprehensive approach.” The recently implemented passport checks by Peru and Ecuador aimed to reduce the flow of refugees into the countries. However, all it did was reduce the legal way of entering into these nations and increased the illegal border crossings.  To deal with this disaster and the refugee predicament, representatives from Colombia, Ecuador and Peru will meet in Bogota next week. Christian Kruger, the head of Colombia’s migration authoritysaid in a statement, “The exodus of Venezuelan citizens is not a problem exclusive to Colombia, Peru, Ecuador or a single country. This is a regional problem and as such we must address it. Demanding passports from a nation that does not have them and whose government does not facilitate the issuance of this document is to encourage irregularity.” Peru is also calling a meeting at an individual level of the permanent council of the Organization of American States to discuss the migration.

The toll of migrants entering Colombia is around a million in fifteen months but nations like Chile, Brazil, Ecuador, Peru are also receiving these refugees. Low skilled Venezuelans have flooded some Latin American job markets to find work and send money back home. United Nations Secretary-General Antonio Guterres told Colombian Foreign Minister Carlos Holmes Trujillo that he will set up a UN team that will respond to the crisis. UN spokesman Stephane Dujarric said that Guterres “told him that he would put together an internal coordination mechanism to make sure that the UN regional response is well coordinated.” “This is something that is not uncommon in these types of crises,” he added. Dany Bahar of the Brookings Institution suggested declaring this as a refugee crisis in order to seek help, saying, “It is up to the United Nations, together with the Organization of American States, to step up and recognize this problem as a refugee crisis so that the world can turn the proper attention to it and provide solutions.” He also added that none of the nations in the regionhave taken the initiative to provide a sustainable solution to the problem.

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