In Europe, Brazil President Says World Needs to Shop More to Get Out of Crisis

Brazil president Dilma Rousseff meets with Belgium's King Albert The president of Brazil, Dilma Rousseff told reporters she did not recommend adopting harsh measures, such as tighter fiscal adjustments, to combat the impact of the international economic crisis.

Dilma called such measures “extremely recessive,” pointing out that they had been used in Brazil in the 1980s and 1990s, with negative results, which she described as “stagnation and unemployment.”

“Brazil is doing what it can to deal with the crisis. Countries should move to strengthen purchasing power, reduce unemployment and protect social rights,” she said in a statement made after meeting with the prime minister of Belgium, Yves Leterme.

Leterme, declared that his country considers the Brazilian proposal for a permanent seat on the United Nations Security Council legitimate and that his country is in favor of a reform of the council.

“Even with the crisis, Brazil continues growing,” said Dilma. “Our economic growth is coupled with social inclusion – raising more people out of poverty – and technological expansion.”

Overly restrictive fiscal measures are unlikely to solve the European Union’s debt crisis, Rousseff insisted in Brussels in the sidelines of the V strategic meeting between the European Union and Brazil.

“In our case extremely restrictive fiscal measures only deepened the process of stagnation and loss of opportunity. It is difficult to exit the crisis without increasing consumption and growth,” she said.

Rousseff and senior Brazilian ministers are meeting with EU leaders this Tuesday to discuss responses to the EU debt crisis as well as joint trade, energy and investment projects.

“Brazil will do everything necessary to diminish any possible impact of the crisis on its domestic economy,” Rousseff anticipated.

Plans on how to address and try to solve the euro crisis are the main issues of the meeting of Ms Rousseff with European leaders in anticipation of the coming G20 meeting scheduled for November 3 and 4 in Cannes.

The two heads of state did not discuss a contentious proposal by the EU executive to tax financial transactions such as trading in bonds and shares, PM Leterme told journalists.

That plan was mooted as a central plank of efforts to recoup cash from an industry that cost governments billions of euros during the financial crisis, but faces opposition particularly from Britain.

As confirming President Rousseff’ warning on Monday it was announced that the Greek economy, undergoing a tough restrictive package of measures imposed by creditors and multilateral organizations will remain stuck in recession next year.

According to the Greek draft budget sent to Parliament, GDP is seen contracting by 2.5% next year from a 5.5% slump in 2011. These numbers are in line with recent forecasts by the IMF, but much worse than predictions used in July to calculate a second, 109 billion Euro rescue package which anticipated 0.6% growth in 2012, putting an end to three consecutive years of recession.

However, if Greece’s international lenders, also known as the “troika”, conclude in a report to be issued this month that recession will continue to be worse than predicted, EU officials have suggested that banks that agreed in July to write off 21 percent of the value of their Greek debt holdings may be forced to take deeper losses.

The country’s debt is expected to rise to nearly 173% of GDP next year from about 162% in 2011, the budget draft said. Greek growth is a key factor in determining whether this debt is viable or whether the country will have to default.

More Exports

The Brazilian president signed a bill exempting defense companies from taxes for five years. The measure is geared to prop the defense industry and reduce the share of imported equipment for the armed forces.

“We don’t want to produce only for Brazil. We know our competitiveness resides in our ability to export,” Rousseff said.

She said the tax breaks will not only boost the defense industry, but also help create a trade surplus in the sector for Brazil.

In the past decade, Brazil’s defense imports totaled US$ 2.37 billion, while defense exports totaled 470 million dollars, with an overall deficit of US$ 1.9 billion.

Defense minister Celso Amorim said the tax exemption will increase the armed forces’ ability to protect Brazil’s resources.

“We live in a fairly complex world, in which we don’t know where threats come from, but we know what we must protect,” he said.

Tax breaks are expected to benefit 186 companies. To be qualified for the exemption, companies must have factories in Brazil and produce strategic equipment such as weapons, ammunition, satellites, rockets, planes and military vehicles.

This is the latest measure Brazil has adopted to defend and boost its own enterprises. Last month the government increased the tax over imported vehicles by 30%, excepting those from Mercosur and Mexico, with which Brazil signed an agreement for the automobile sector.

ABr/MP

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