UNCTAD WORLD BANK TRADE FACILITATION SEMINAR GENEVA MAY 13th 2004 Brazil Programmatic Loan for Sustainable and Equitable Growth by bdc71508

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									         UNCTAD - WORLD BANK
      TRADE FACILITATION SEMINAR
                GENEVA, MAY 13th, 2004




Brazil Programmatic Loan for Sustainable and
              Equitable Growth



            Paulo Guilherme Correa
                      Team Leader
        Finance, Private Sector and Infrastructure
            Latin America and the Caribbean
                       World Bank
                                                                                        UNCTAD/World Bank - Trade Facilitation Seminar



 The Country Assistance Strategy

 Provide support towards a more equitable and sustainable Brazil, built on a
    foundation of good governance through …
 … four sets of programmatic adjustment loans supporting each of these areas.

                                                                                     - Better
                                                                               knowledge and skills
The Programmatic                                EQUITABLE
                                                                          - More efficient financial sector
                                                                                                            COMPETITIVE
Adjustment Loan:                          - Adequate                    - Entrepreneur-friendly investment    - More efficient
                                        protection for                                 climate                 infrastructure and
                                       vulnerable groups.                       - More employment               competition
                                     - Longer, healthier lives.                                                  - More modern
                                                                                                                  innovation
No fiscal Impact                                                                   A MORE                           climate
                                                                                EQUITABLE,
(Some) External Financing                               - More
                                                                               SUSTAINABLE,                    - More
                                                       equitable                                             sustainable
                                                                               COMPETITIVE
Supports the design and                             access to local
                                                                                 BRAZIL
                                                                                                             land
                                                                                                         management,
                                                    services.
implementation of a specific                             - Greater social                               forests and
agenda of policy reform (technical                            inclusion.                               biodiversity

advice & consensus building)
                                                                          - Better water quality and water
International Reptuation                                                      resource management

TALs                                                                           SUSTAINABLE



                                                                                FOUNDATIONS
                                                                  - Sound macroeconomic management and fiscal reforms
                                                                        - More efficient public sector management
                                                                                    - Good governance
                                                                       UNCTAD/World Bank - Trade Facilitation Seminar




Background: The FHC years (1994-2001)
Significant progress       98                                                 60
                                                        96
in:                        96                                                 50
                                                                                            48

                           94                                                 40                     37
 The Social Areas --      92                                                 30
Education and Health       90                89                               20
– through important        88
                                                                              10
policy changes;            86
                                                                          -
                           84                                                      Mortality Rate, under 5 (per
Structural reforms in                  School Enrollment (%)                                 1,000)
                         Source: Sima                                    Source: Sima
Infrastructure
Industries;
Macroeconomic              12,000
                                                         9,968
                                                                         2,500
                            10,000                                                        2,076
Stabilization ...               8,000                                    2,000

                                6,000
                                                                         1,500
                                4,000
                                2,000             648                    1,000
                                  -
                                            Annual Investment in           500
                                           Infrastructure Projects                                   7
                                          with Private Participation          -
                                                (US$ Million)                           Inflation (% annual)
                          Source: PPI Database -World Bank             Source: Sima
                                                                              UNCTAD/World Bank - Trade Facilitation Seminar

Background
 ... And yet a difficult heritage.
          High debt to GDP ratio                                    High real interest rate
                       Public debt (% of GDP)
                                                                           Real Interest Rate, July 2001 ( %)

    70
                                                            14
    60
                                                            12
    50
                                                            10
    40
                                                             8
    30
                                                             6
    20                                                       4
    10                                                       2
     0                                                       0
              Brazil            Mexico             Chile                 Brazil              Mexico              Chile
   Source: Brazilian Central Bank                          Source: IMF


                Low GDP Growth                                   High unemployment levels
                                                                  Unemployment, total, 2002 (% of total labor force)
                GDP growth - average 1991-2000
                          (annual %)
                                                            12
    7
                                                            10
    6
                                                             8
    5
    4                                                        6

    3                                                        4

    2                                                        2
    1
                                                             0
    0                                                                Brazil         Mexico            Chile     Latin America
             Brazil             Mexico             Chile                                                         & Caribbean
  Source: Loayza, Fajnzylber and Calderón (2002)           Source: Sima
                                                                                                                                                                                                                                                                                                                                      UNCTAD/World Bank - Trade Facilitation Seminar


Background: Lula election in 2002 (53 million votes) expressed:

 •   The need to grow and generate employment (2.7 million unemployed)
     …
 •   … within a tight fiscal situation and poor external financing conditions
     (high risk by external markets)…
                                                                                                                      Brazil EMBI Spreads and Exchange Rate

                                      2800                                                                                                                                                                                                                                                             4.5
                                                                                                                                                                                                                                                                                                                                       ... leading to:
                                                                                                                                                                                                                                                                                                                                       Superavit (2002) -
                                      2600

                                      2400                                                                                                                                                                                                                                                             4.0

                                      2200                                                                                                                                                                                                                                                                                             R$ 52.4 bi (4.06%
      EMBI - Spreads (Basis Points)




                                                                                                                                                                                                                                                                                                             Exchange Rate (R$/US$)
                                      2000

                                      1800
                                                                                                Elections
                                                                                                                                                                                                                                                                                                       3.5
                                                                                                                                                                                                                                                                                                                                       GDP)
                                                                                                                                                                                                                                                                                                                                       Domestic Interest
                                      1600                                                                                                                                                                                                                                                             3.0

                                      1400

                                      1200                                                                                                                                                                                                                                                             2.5                             Rate: 25.5% p.y.
                                      1000

                                      800                                                                                                                                                                                                                                                              2.0
                                                                                                                                                                                                                                                                                                                                       Pension Reform
                                      600

                                      400                                                                                                                                                                                                                                                              1.5
                                                                                                                                                                                                                                                                                                                                       Bill
                                             1/2/01
                                                      2/14/01
                                                                4/2/01
                                                                         5/15/01
                                                                                    6/27/01
                                                                                              8/9/01
                                                                                                       9/26/01
                                                                                                                 11/8/01


                                                                                                                                       2/7/02
                                                                                                                                                3/22/02
                                                                                                                                                          5/7/02
                                                                                                                                                                   6/20/02
                                                                                                                                                                             8/2/02
                                                                                                                                                                                      9/16/02




                                                                                                                                                                                                                      1/29/03
                                                                                                                                                                                                                                3/13/03
                                                                                                                                                                                                                                          4/29/03
                                                                                                                                                                                                                                                    6/11/03
                                                                                                                                                                                                                                                              7/24/03
                                                                                                                                                                                                                                                                        9/4/03
                                                                                                                           12/24/01




                                                                                                                                                                                                10/29/02
                                                                                                                                                                                                           12/12/02




                                                                                                                                                                                                                                                                                 10/16/03
                                                                                                                                                                                                                                                                                            11/27/03                                   Tax Reform Bill
                                                                                                                                      EMBI Spreads                               Exchange Rate

                                                                                   Source: JP Morgan
                                                                                         UNCTAD/World Bank - Trade Facilitation Seminar



Growth and the FPLSEG: The Growth Agenda
 Despite structural reforms, low trade integration, poor business
   environment, limited financial intermediation, and insufficient
   technology performance.


  Indicator                                                          Brazil         Latin America                OECD
  Labor Productivity, 2000 (value added per                          13,894         18,492 (Mexico)           54,879 (U.S)
  worker, US$)                                                                       27,765 (Chile)
  Trade volume, 2000 (% GDP)                                             23            63 (Chile)
                                                                                      64 (Mexico)
  Days to start a business, 2001                                        63             28 (Chile)             1-3 (Ireland)
  Private sector credit, 2001 (%GDP)                                    35             69 (Chile)              143 (U.S.)
  Patents registed in the US, 2001 (per                                0.64          0.82 (Mexico)           68.0 (France)
  1,000,000 population)
  Source: Sima, Brazil Jobs Report, Foreign Inestment Advisory Service and USPTO.
                                                                                                             UNCTAD/World Bank - Trade Facilitation Seminar



Growth and the FPLSEG (contd)
                      Low investment                                                                                     Patents
                                                                                                                    Patents Granted in the US
                    Gross fixed capital formation (% of GDP)                                  250
                             3 years m oving average
   40
                                                                                              200                                                Singapore

   35                                                   China
                                                                                              150
   30

                                              Chile                                           100
   25
                                      India                                                                          Brazil
   20                              Mexico                                                     50
                                                      Brazil                                                                                    India
   15
                                                                                               0
        1994 1995   1996    1997     1998     1999      2000    2001       2002
                                                                                                    1987     1989    1991     1993   1995       1997    1999
  Source: Sima                                                                              Source: USPTO


                                                        Low Productivity
                                                         Value added per worker, 2000 (US$)

                               60000                                                                       54879

                               50000

                               40000
                                                                                    27765
                               30000
                                                                   18492
                               20000           13894

                               10000

                                      0
                                               Brazil             Mexico            Chile            United States
                              Source: Sima
Loan Overview
 •   This adjustment loan of US$ 505 million is part of a broader program
     to support an specific set of microeconomic measures and
     institutional reforms, that will foster growth and employment
     generation in Brazil through increased investment and productivity.

 •   This first loan will support four main objectives:
       reducing logistics costs, encompassing multi-modal transport
        planning, customs, ports, and roads;
       improving the business environment, including infrastructure
        regulation, competition policy, barriers to entry, and the framework
        for corporate insolvency and creditor rights;
       enhancing financial system efficiency and depth (including long-
        term credit, insurance, and venture capital), and
       improving Brazil’s capacity to transform knowledge into
        productivity gains (through the innovation system).

 •   Subject to progress in the implementation of these measures, a
     second and loan and third loan are envisaged adding to US$ 1 billion
     in the next 4 years.
                                                           UNCTAD/World Bank - Trade Facilitation Seminar


Loan Overview (Architecture)
• The reforms supported represent a coherent set of measures of sufficient breadth
  and depth to have a significant impact on growth, stability, and poverty reduction.

• The package is focused on win-win reform areas to leverage the impact of the
  remaining political capital.

• These form a robust subset of a longer list of growth-oriented measures on which
  the Government is acting, including measures to reduce tax distortions, improve
  contract enforcement, deepen trade integration, and strengthen labor markets.




              Growth Program
                                                            Development
              
               Logistics                  Growth Agenda     Strategy
              
               Business Environment
                                          
                                           Trade Policy     
                                                             Macroeconomic
              
               Financial Sector
                                          
                                           Taxation          management
              
               Innovation
                                          
                                           Labor            
                                                             Education
                                          
                                           Contracts        
                                                             Institutions and
                                                             Governance
                                                                                                                                                                                                                      UNCTAD/World Bank - Trade Facilitation Seminar


         Growth, Trade and Logistics Costs in Brazil
         Poor trade integration although improving in recent years …
                                                                       Brazil                                                                                                                                                      China




                                                                                                                                                     GDP per capita (constant 1995
GDP per capita (constant 1995




                            4800                                                                                             32                                                  1000                                                                                                   60
                            4600                                                                                             30                                                      900




                                                                                                                                  Trade (% of GDP)
                                                                                                                                                                                                                                                                                        50




                                                                                                                                                                                                                                                                                             Trade (% of GDP)
                            4400                                                                                             28                                                      800
                            4200                                                                                             26                                                      700
                                                                                                                                                                                                                                                                                        40
                            4000                                                                                             24
           US$)




                                                                                                                                                                                     600




                                                                                                                                                                US$)
                            3800                                                                                             22                                                      500                                                                                                30
                            3600                                                                                             20                                                      400
                            3400                                                                                             18                                                                                                                                                         20
                                                                                                                                                                                     300
                            3200                                                                                             16                                                      200
                                                                                                                                                                                                                                                                                        10
                            3000                                                                                             14                                                      100
                            2800                                                                                             12                                                             0                                                                                           0
                                   1980    1982   1984   1986   1988   1990     1992   1994     1996   1998   2000    2002                                                                      1980   1982   1984   1986   1988   1990   1992   1994       1996   1998   2000   2002

                                                                GDP per capita (constant 1995
                                                                                                                                                                                                                            GDP per capita (constant 1995
                                                                US$)                                                                                                                                                        US$)
                                                                Trade (% of GDP)                                                                                                                                            Trade (% of GDP)


                                                                                                                     29.3%

                                                                                                          17.4%                                                                                                                       India

                                                                                                                                                                                            550                                                                                              35
                                          -72.2% -56.5% -42.6% -25.9%         -18.4%   -18.2%    -14.0%




                                                                                                                                                                      (constant 1995 US$)
                                                                                                                                                                                            500




                                                                                                                                                                                                                                                                                                          Trade (% of GDP)
                                                                                                                                                                                                                                                                                             30

                                                                                                                                                                         GDP per capita
                                                                                                                                                                                            450
                                                   Ve b ia



                                                              ia
                                              il




                                                                                                                                                                                                                                                                                             25
                                                            ela




                                                     M e
                                                           ico
                                                   Co o r
                                                    Ec u
                                   a




                                                                                                                                                                                            400
                                                            il
                                            az

                                                             r
                                tin




                                                         liv
                                                        Pe

                                                          d




                                                        Ch
                                                        zu
                                                      lom




                                                       ex
                                          Br



                                                       ua
                         n




                                                                                                                                                                                            350
                                                     Bo




                                                                                                                                                                                                                                                                                             20
                                                     ne
                      ge




                                                                                                                                                                                            300
                   Ar




                                                                                                                                                                                                                                                                                             15
                                                                                                                                                                                            250
                                                                                                                                                                                            200                                                                                              10
                                                                                                                                                                                                  1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
                                                                                                                                                                                                                            GDP per capita (constant 1995
                                                                                                                                                                                                                            US$)
                                                                                                                                                                                                                            Trade (% of GDP)
                                                                                                                                                                                                                                               Source: Sima
.
    … even though tariffs have not being particularly high (un-weighted tariff rates
       in percentage terms)




             120.0
                                                                                                                       India
             100.0                                                                                                     China
                                                                                                                       Brazil
              80.0

              60.0

              40.0

              20.0

               0.0
                     1986

                            1987

                                   1990

                                          1991

                                                 1992

                                                        1993

                                                               1994

                                                                      1995

                                                                             1996

                                                                                    1997

                                                                                           1998

                                                                                                  1999

                                                                                                         2000

                                                                                                                2001

                                                                                                                       2002

                                                                                                                               2003
                                                     UNCTAD/World Bank - Trade Facilitation Seminar



Logistics Cost in Brazil
                                                 Lo gis t ic s c o s t of
                                               Logistics Costs as a share s GDP
Logistics costs in Brazil are                  a s a s ha re o f G D P
   estimated at about 20
   percent of GDP, almost              P eru                                           24

   twice the level in OECD        A rgentina                                      21

   countries…                         B razil                                    20

                                     M exico                                18

                                   Germany                           13

….affecting trade integration        Taiwan                          13

   and regional development        P o rtugal                        12.7

   within Brazil.                   Canada                          12

                                      Japan                        11.3

                                        Italy                      11.2

                                          UK                      10.6

                                       USA                        10.5


                                                 0           10             20              30
                                                              Per cent of GDP
                                Source: Sima
                                                             UNCTAD/World Bank - Trade Facilitation Seminar



Logistics Cost in Brazil
 Inventory and Warehousing costs               Ratio of inventory levels to U.S.
  are the main individual cause for the                 inventory levels
  high logistics costs ...
                                                Brazil

 ... accounting for almost 40 percent        M exico
  in the region.
                                                Chile

 Inventory costs are proportional to       Colombia

  interests rates, which have               Venezuela
  remained high in the region,
  particularly in Brazil. But inventory          Peru

  levels in Brazil and many other              Bolivia
  developing countries are typically
  twice as high for final products and       Ecuador

  three times as high for raw material
  as in the United States.                               0          2          4           6
                                                         raw materials       final goods
                                          Source: Sima
                                                                                   UNCTAD/World Bank - Trade Facilitation Seminar



 Logistics Cost in Brazil
                                                                              Table 2
 Transport and                                        Modal Shares in Total Output and Expenditures in 1999
  transshipment costs
  represent about a third of                                       Output            %       Expenses        %         Rate
                                                                  billion tku                 $million               $/000’ tku
  logistics costs in Latin
  America.                           Air                             2.2            0.1         292         0.8         130


                                     Costal                         100.0           6.5         753         2.2          8
 Brazil’s domestic freight          shipping
  transport market has in
  recent decades been                Pipes                          33.1            2.1         102         0.3          3
  dominated by the trucking
  industry ...                       Rail                           140.8           9.1        1,111        3.2          8


                                     Truck                         1,271.2          82.1      32,766       93.6          26
 ...which accounts for
  almost 80 percent of the           Total                         1,547.4         100.0      35,025       100.0         19
  demand for transport and
  is essencially unregulated.
                                           Source: de Castro, N., (2001) “Freight Transportation and Logistics in Brazil: An
                                                                                Overview.”

Following privatization, railways have been increasing their share of traditional
markets (particularly the grain market) but still unable to compete with trucks.
                                                                               UNCTAD/World Bank - Trade Facilitation Seminar



Logistics Costs in Brazil                                                             Table 1
                                                                       Port transit times compared (days)
 The ongoing reform of the
                                                                                       Brazil   China    India   Malaysia
  ports system has led to
  significant reductions in                                         Imports:
  the port cots and tariffs….
  But labor costs in many                                               Average        13.8      7.5     10.4      3.4
  Brazilian ports remain
  high…                                                                  Longest       32.4     12.2     21.6      7.4


                                                                    Exports:

  350                                                                   Average         8.4      5.5      5.1      2.6

  300
                                                                         Longest       16.9      8.1      9.3      5.1
  250

  200                                                               Source: World Bank, Investment Climate Assessments


  150                                     .                         … as well as transit
                                                                    times.
  100

  50

   0
        Brazil (1997)   Brazil (2000)   Buenos Aires   Rotterndam
                                                                      UNCTAD/World Bank - Trade Facilitation Seminar



Logistics in Brazil
  Customs and related administration costs represents more than 10 percent of
   operating costs average.
  Including losses and insurance, customs and administration account for 30
   percent of the firms’ logistics costs in the region.
  Brazil’s customs procedures and practices are reported as the single most
   important obstacle for the expansion of Brazilian exports, according to the
   business community .




                                  Source: Os Problemas da Empresa Exportadora Brasileira - CNI
                                                                                  UNCTAD/World Bank - Trade Facilitation Seminar



Logistics in Brazil
      Customs
(Based on a diagnostic prepared for the project - full report in Project Files)
       Outdated Customs procedures (further simplification needed, as for example
        consolidating export declaration and export register).
       Insufficient equipment (software and hardware), despite recent progress
        with Siscomex and Radar (further automation still needed)
       Excessive number of inspections, despite some recent progress
        (rationalization through risk management needed).
       Poor training of inspectors.
       Excessive emphasis on tax collection to the detriment of trade facilitation.


         Days to clear customs-- Imports        Brazil       China       India     Bangladesh


                      Average                    14.0         7.9         7.1          11.7
                      Longest                    32.0         12.5       12.8          23.2
         Days to clear customs --Exports
                      Average                     8.7         5.4         5.4           8.8
                      Longest                    16.8         8.0         8.0          14.0
                                                          UNCTAD/World Bank - Trade Facilitation Seminar



Logistics in Brazil
    Customs-Selectivity System for Custom Release (Siscomex)

        On line system for custom release (import and export). Customs
         releases are processed in Siscomex and results communicated to the
         trader. The system offers 4 modalities of customs release --immediate,
         document review and/or physical inspection and fraud.

        The selection process takes place during specific periods of time
         depending on the customs port, varying from every two hours to four
         times a day (not 24 hours). The built-in time frame gives the customs
         officers time to perform their own analysis independent of the system’s
         results, increasing arbitrary decisions.

        There is no link yet to the Radar System -- that collects
         importer/exporter profile data and inspection results -- nor to the
         Merchant Marine System (to capture vessel transportation data),
         making it more difficult to develop modern risk management systems.

        In 2002 (first quarter), at least 27% of imports were physically inspected
         and only 51% of exports were automatically released.
                                                             UNCTAD/World Bank - Trade Facilitation Seminar



Logistics in Brazil
  Road network is relatively                            … and in bad
   poor …                                                 conditions:
                             Roads, paved
                            (% of total roads)
                            1994         1999    var
                                                            3.4% of the
                                                             production of non-
Brazil                      8.1           9.6    19%         exporting and
Chile                       13.8         18.9    37%         1.6% of exporting
Latin America & Caribbean   23.8         24.3    2%
                                                             firms’ are lost
                                                             annually due to
                                                             transport failures ,
Indonesia                   53.8         46.3    -14%

Korea, Rep.                 77.8         74.5    -4%
                                                            while 1% of sales
Philippines                 16.6         20.0    20%
                                                             of non-exporting
Thailand                    94.7         97.5    3%
                                                             and 1.2 % of sales
                                                             of exporting firms
OECD -- High income         86.0         88.0    2%          are annually lost
                                                             in breakage.

                                                                            (Brazil- ICA, 2004)
                                                                                                                    UNCTAD/World Bank - Trade Facilitation Seminar


       The First Programmatic Loan for Sustainable and Equitable Growth
       (FLSEG) – Reform Program (1of 4)
Area/Policy                  Prior Actions                       Key Next Steps                     Medium-Term Actions                Expected Outcome Indicators

    Macroeconomic Management and Overall Growth Program Definition
                               - Adequate macro-economic framework
                               - Satisfactory Growth Program and Publication of White Paper

Reduce Logistics Costs
    1. Improve Customs         - Customs Reform Strategy           - Selectivity level cut from 40% to - Clearance systems and              - Average gross release time
    Effectiveness              approved                            30%                                 procedures streamlined and           decreased from 5 to 3 days
                                                                                                       adapted to expanded Customs’         (imports) and from 2.0 days to 1.0
                                                                                                       mission and selectivity cut to 20%   day (exports)
                                                                   - Average net release time cut by
                                                                   20%
    2. Reduce Port Costs                                           - Productivity improvement plan - Port authorities restructured and - Average cargo transit time
    and Delays                                                     approved                        productivity plan implemented       through port cut from 13.8 to 10 days
                                                                                                                                       for imports and 8.4 to 5 days for
                                                                                                                                       exports; average container handling
                                                                                                                                       cost cut by 10%

    3. Reduce Transport        - Law reorganizing Federal        - Output based                        - Road network classification law - 50% of road network in good
    Costs on Federal Road      Transport Administration approved maintenance/rehab contracts on        approved                          condition (as evaluated by the
    Network                    and implemented                   30% of federal road network                                             International Roughness Index),
                               - 9% of non-trunk roads on          - Further 12% of non-trunk roads - In addition to road concessions - Average road transport costs
                               remaining federal network           on remaining federal network     existing in 2003, further 5% of the decreased 5%
                               transferred to state management     transferred to state management remaining federal network under
                                                                                                    concession
                                                                                                                                            - Total of 25% of non-trunk roads
                                                                                                                                            on remaining federal network
                                                                                                                                            transferred to state management
    4. Foster Multi-modal      - Geographical restructuring of                                                                              - 10% increase in non-road
    Transport                  railway concessions underway                                                                                 transportation share
                                                                                                                                             UNCTAD/World Bank - Trade Facilitation Seminar



      The FLSEG – Reform Program (2 of 4)

Area/Policy                             Prior Actions                              Key Next Steps                         Medium-Term Actions                           Expected Outcome Indicators


 Improve the Business Environment
   1. Strengthen Infrastructure           Creation of land and water transport      PPP Law approved by Congress                Law on Career Development Plan         5 Public-Private Partnerships
   Regulation                            regulatory agencies (ANTT and                                                     for Regulators approved by Congress           projects approved
                                         ANTAQ)

                                          PPP Law submitted to Congress             Draft law on Career Development
                                                                                    Plan for Regulators submitted to
                                                                                    Congress
   2. Enhance the Competitive             Amendments to Antitrust Law                                                      Amendments to Antitrust Law                  Increase in number of “hard-core”
   Environment                           reviewed by inter-ministerial committee                                           approved by Congress                          cartel cases with national impact
                                                                                                                                                                         successfully prosecuted
                                                                                                                                                                          Pre-merger notification made
                                                                                                                                                                         mandatory

   3. Simplify Entry and Business         Constitutional amendment approved                                                          Law regulating the unification     Time needed to register a firm
   Operation                             to, inter alia, unify tax collection at                                               of tax collection approved by             decreased to 76 days in pilot cities
                                         federal, state and municipal levels for                                               Congress
                                         micro and small companies


                                          Simplified procedures for
                                         companies’ registration adopted in some
                                         cities
                                          Export norms simplified by MDIC


   4. Strengthen Corporate Insolvency     New Bankruptcy Law and Tax Code           Bankruptcy Law enacted                Bankruptcy law becomes effective             Increased speed of recuperation /
   Framework                             Amendment passed by Lower House                                                                                                 resolution and higher recovery value of
                                                                                                                                                                         insolvent enterprises
                                                                                     Amendment to Tax Code enacted                                                       Reduced spreads in financial
                                                                                                                                                                         intermediation
                                                                                     Preparation program initiated for
                                                                                    judiciary and courts for new law
                                                                                                                         UNCTAD/World Bank - Trade Facilitation Seminar



       The Reform Program (3 of 4)
Area/Policy                     Prior Actions                        Key Next Steps                       Medium-Term Actions                  Expected Outcome
                                                                                                                                               Indicators
  Enhance the Efficiency and Depth of the Financial System
    1. Increase Financial           Draft Complementary Law,                                                Effectiveness of Banking          Examination of market
    Competition                    extending application of                                                 Competition Law                    conduct issues in banking sector
                                   Antitrust to Banking, submitted                                                                             by competition authority
                                   to Congress                                                                                                 initiated

                                                                                                                                                Reduced bank administrative
                                                                                                                                               costs components in bank
                                                                                                                                               spreads

    2. Sound Fundamental            Constitutional Amendment           Key legal initiatives for           Key legal reforms in financial    Legal framework and
    Legislation and Systemic       (Article 192) approved              financial reform presented to        system voted by Congress           physical infrastructure for
    Risk Control                                                       Congress                                                                financial system modernized;
                                                                                                                                               risks reduced and access to
                                    New large value payments           Evaluation of residual risk in      Second phase (retail)            financial services expanded.
                                   system installed and operating      the payments system completed        payments system reform
                                   successfully                                                             launched.

                                                                        Blueprint prepared for second
                                                                       phase payments reform (retail
                                                                       payments)

    3. Mobilize Long-Term           Regulations strengthened on                                             Extend permission for             Accelerated expansion of
    Resources in Insurance         asset allocation, eligibility,                                           provision of reinsurance to new    insurance industry assets on
    Sector                         registration, custody and audit                                          entrants                           sound basis
                                   requirements enhanced                                                                                        Enhanced service providers
                                                                                                                                               in reinsurance


    4. Improve Efficient            Provisional law and                Evaluate impact of new              Passage through Congress of       Bank accounts
    Financial Access for the       Resolutions passed to expand        microfinance measures in terms       new factoring law.                 (sight+savings) expanded from
    Poor and for SMEs              financial access at banks           of cost, outreach and impact.                                           95 (end 01’) to 103 million by
                                                                                                                                               2006.

                                                                        Introduce small claims courts       Enhanced use of positive          Increased credit availability
                                                                       for small credits                    information for credit reporting   on sound footing to small
                                                                                                                                               borrowers

                                                                        Establish interlinkage of           Reduction of tax write offs
                                                                       credit registries                    for uncollected small claims
                                                                                                      UNCTAD/World Bank - Trade Facilitation Seminar



       The Proposed Loan (4 of 4)
Area/Policy                        Prior Actions                         Key Next Steps   Medium-Term Actions               Expected Outcome
                                                                                                                            Indicators

  Increase Innovation Capacity to Transform Knowledge into Productivity Gains
    1. Increase Public R&D              Innovation Law sent to                               Innovation Law approved by      Number of technology
    Effectiveness                    Congress                                              Congress                         transfer contracts between public
                                                                                                                            universities/research centers and
                                                                                                                            the private sector increased by
                                                                                                                            20%

    2. Foster Private Innovation        Regulation of Fundo Verde-                           Evaluation completed of         10 percentage point increase
                                     Amarelo and other mechanisms                          operations and management        in privately funded R&D share
                                     to support private R&D                                procedures of Sector Funds and   in total R&D expenditures
                                     introduced                                            FINEP

    3. Create Innovation in             Kyoto protocol ratified, ICCC                        ICCC approval and               US$100 million in sales of
    Environmental Markets            operational, and CDM project                          monitoring systems financially   carbon credits
                                     approval mechanism published                          self-sustaining
Implementation Arrangements
 •   A US$ 12 million “Programmatic” TAL started to be negotiated this
     morning in Brazil, evolving three main counter-parts: Ministry of
     Finance; Ministry of Transport and Ministry of Science and
     Technology.

 •   Creation/ revitalization of three inter-ministerial commissions/ working
     groups:
      – Economic Policy;
      – Infrastructure;
      – Science and Technology

 •   Increased dialogue with the Private Sector through the National
     Council of Social and Economic Development (created in Lula’s
     Administration) and traditional business associations such as CNI.
     Possible creation of an informal steering committee.
•
Final Remarks:

Documents that could be shared:

       Loan Document (with an annex on logistics).
       A Detailed Diagnostic of Brazilian Customs.

       EMAIL: PCORREA@WORLDBANK.ORG



Thank you.

								
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