Transcript Brazil - World Bank

Designing a Policy Matrix for
Development Policy Lending
Brazil First Programmatic Loan
for Sustainable and Equitable Growth
Development Policy Lending (DPL) Course
Results Focus in DPL
Washington DC, February 14-15 2005
Brazil Programmatic Loan for Sustainable and
Equitable Growth
Paulo Guilherme Correa
Finance, Private Sector and Infrastructure
Latin America and the Caribbean
1.
Objective: to illustrate how the results-focus approach may
be facilitated by:
-- A clear definition on the scope of supported reforms and how
their packaging contribute to the final project outcome.
-- A clear definition on what to achieve in each reform area.
2.
•
•
•
•
The structure of the presentation
Background
Agreement on the scope of the operation: 1st vs 2nd generation reforms
Deepening the understanding and sharpening the long run vision in
each area: the case of logistics.
The Matrix
Background: 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.
The Programmatic
Adjustment Loan:
No fiscal Impact
(Some) External Financing
Supports the design and
implementation of a specific
agenda of policy reform (technical
advice & consensus building)
International Reptuation
TALs
EQUITABLE
- Adequate
protection for
vulnerable groups.
- Longer, healthier lives.
- Better
knowledge and skills
COMPETITIVE
- More efficient financial sector
- Entrepreneur-friendly investment
- More efficient
climate
infrastructure and
competition
- More employment
- More modern
innovation
A MORE
climate
- More
equitable
access to local
services.
- Greater social
inclusion.
EQUITABLE,
SUSTAINABLE,
COMPETITIVE
BRAZIL
- More
sustainable
land
management,
forests and
biodiversity
- Better water quality and water
resource management
SUSTAINABLE
FOUNDATIONS
- Sound macroeconomic management and fiscal reforms
- More efficient public sector management
- Good governance
Background: The FHC years (1994-2001) and Lula’s first year
Significant progress
in:
 The Social Areas -Education and Health
– through important
policy changes;
Structural reforms in
Infrastructure
Industries;
Macroeconomic
Stabilization ...
98
60
96
96
50
94
40
92
30
89
90
48
37
20
88
10
86
-
84
Mortality Rate, under 5 (per
1,000)
School Enrollment (%)
Source: Sima
Source: Sima
12,000
9,968
2,500
2,076
10,000
2,000
8,000
6,000
1,500
4,000
2,000
648
1,000
Annual Investment in
Infrastructure Projects
with Private Participation
(US$ Million)
Source: PPI Database -World Bank
500
7
Inflation (% annual)
Source: Sima
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: IMF
Source: Brazilian Central Bank
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
Brazil
Mexico
Source: Loayza, Fajnzylber and Calderón (2002)
Chile
Source: Sima
Mexico
Chile
Latin America
& Caribbean
Background: Lula’s First year
Brazil EMBI Spreads and Exchange Rate
2800
Superavit (2002) 4.06%
GDP
4.5
2600
4.0
2200
2000
3.5
1800
1600
3.0
1400
1200
2.5
1000
800
Exchange Rate (R$/US$)
EMBI - Spreads (Basis Points)
2400
Domestic Interest Rate:
25.5% p.y.
Pension Reform Bill
2.0
Elections
600
EMBI Spreads
11/27/03
9/4/03
10/16/03
7/24/03
6/11/03
4/29/03
3/13/03
1/29/03
12/12/02
10/29/02
8/2/02
9/16/02
5/7/02
6/20/02
2/7/02
3/22/02
12/24/01
11/8/01
8/9/01
9/26/01
6/27/01
4/2/01
5/15/01
2/14/01
1.5
1/2/01
400
Tax Reform Bill
Exchange Rate
•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.
Overall diagnosis and loan architecture (why low growth ?)
Patents
Low investment
Gross fixed capital formation (% of GDP)
Patents Granted in the US
250
3 years m oving average
40
Singapore
200
35
China
150
30
100
Chile
25
Brazil
India
Mexico
20
50
Brazil
India
15
1994 1995
Source: Sima
1996
1997
1998
1999
2000
2001
0
2002
1987
1989
Source: USPTO
Low Productivity
Value added per worker, 2000 (US$)
60000
54879
50000
40000
27765
30000
20000
18492
13894
10000
0
Brazil
Source: Sima
Mexico
Chile
United States
1991
1993
1995
1997
1999
Overall diagnostic and loan architecture (which areas?)
Loan architecture
Growth Program




Logistics
Business Environment
Financial Sector
Innovation
Growth Agenda




Trade Policy
Taxation
Labor
Contracts
Development
Strategy
 Macroeconomic
management
 Education
 Institutions and
Governance
Overall diagnostic and loan architeture (what to support?)
Low trade integration,
Poor business environment,
Limited financial intermediation, and
Insufficient technology performance.
Trade volume, 2000 (% GDP)
23
Days to start a business, 2001
Private sector credit, 2001 (%GDP)
Patents registed in the US, 2001 (per
1,000,000 population)
63
63 (Chile)
64 (Mexico)
28 (Chile)
1-3 (Ireland)
35
69 (Chile)
143 (U.S.)
0.64
0.82 (Mexico)
68.0 (France)
Source: Sima, Brazil Jobs Report, Foreign Inestment Advisory Service and USPTO.
Loan Overview
•
This adjustment loan of US$ 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 longterm 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
Growth, Trade and Logistics Costs in Brazil
Poor trade integration although improving in recent years …
32
4600
30
4400
28
4200
26
4000
24
3800
22
3600
20
3400
18
3200
16
3000
14
2800
12
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
1000
60
900
50
800
700
40
600
500
30
400
20
300
200
10
Trade (% of GDP)
4800
GDP per capita (constant 1995
US$)
China
Trade (% of GDP)
GDP per capita (constant 1995
US$)
Brazil
100
0
0
1980
1982
1984
1986
1988
1990
1992
1994
GDP per capita (constant 1995
US$)
GDP per capita (constant 1995
US$)
Trade (% of GDP)
Trade (% of GDP)
1996
1998
2000
2002
29.3%
India
35
-18.2%
-14.0%
Ar
ge
nti
na
Br
az
il
Pe
r
Ec u
ua
d
Co o r
lom
Ve bia
ne
zu
ela
Bo
liv
ia
Ch
il
M e
ex
ico
-18.4%
GDP per capita
(constant 1995 US$)
550
-72.2% -56.5% -42.6% -25.9%
500
30
450
400
25
350
20
300
15
250
10
200
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
GDP per capita (constant 1995
US$)
Trade (% of GDP)
Source: Sima
Trade (% of GDP)
17.4%
.
… even though tariffs have not being particularly high (un-weighted tariff rates
in percentage terms)
120.0
India
China
100.0
Brazil
80.0
60.0
40.0
20.0
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1987
1986
0.0
UNCTAD/World Bank - Trade Facilitation Seminar
Logistics Cost in Brazil
Logistics costs in Brazil are
estimated at about 20
percent of GDP, almost
twice the level in OECD
countries…
….affecting trade integration
and regional development
within Brazil.
Logistics
Costs
of GDP
Lo gis
t ic as
s acshare
o sts
a s a s ha re o f G D P
P eru
A rgentina
B razil
M exico
24
21
20
18
Germany
Taiwan
P o rtugal
Canada
13
13
12. 7
12
Japan
Italy
UK
USA
11. 3
11. 2
10. 6
10. 5
0
10
20
P er c ent of GDP
Source: Sima
30
UNCTAD/World Bank - Trade Facilitation Seminar
Logistics Cost in Brazil
 Inventory and Warehousing costs
are the main individual cause for the
high logistics costs ...
Ratio of inventory levels to U.S.
inventory levels
Brazil
 ... accounting for almost 40 percent
in the region.
 Inventory costs are proportional to
interests rates, which have
remained high in the region,
particularly in Brazil. But inventory
levels in Brazil and many other
developing countries are typically
twice as high for final products and
three times as high for raw material
as in the United States.
M exico
Chile
Colombia
Venezuela
Peru
Bolivia
Ecuador
0
Source: Sima
2
raw materials
4
final goods
6
UNCTAD/World Bank - Trade Facilitation Seminar
Logistics Cost in Brazil
 Transport and
transshipment costs
represent about a third of
logistics costs in Latin
America.
 Brazil’s domestic freight
transport market has in
recent decades been
dominated by the trucking
industry ...
 ...which accounts for
almost 80 percent of the
demand for transport and
is essencially unregulated.
Table 2
Modal Shares in Total Output and Expenditures in 1999
Output
billion tku
%
Expenses
$million
%
Rate
$/000’ tku
2.2
0.1
292
0.8
130
Costal
shipping
100.0
6.5
753
2.2
8
Pipes
33.1
2.1
102
0.3
3
Rail
140.8
9.1
1,111
3.2
8
Truck
1,271.2
82.1
32,766
93.6
26
Total
1,547.4
100.0
35,025
100.0
19
Air
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
Table 1
Port transit times compared (days)
Logistics Costs in Brazil
 The ongoing reform of the
ports system has led to
significant reductions in
the port cots and tariffs….
But labor costs in many
Brazilian ports remain
high…
Brazil
China
India
Malaysia
Average
13.8
7.5
10.4
3.4
Longest
32.4
12.2
21.6
7.4
Average
8.4
5.5
5.1
2.6
Longest
16.9
8.1
9.3
5.1
Imports:
Exports:
350
300
250
Source: World Bank, Investment Climate Assessments
200
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
Average
8.7
5.4
5.4
8.8
Longest
16.8
8.0
8.0
14.0
Days to clear customs --Exports
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
poor …
 … and in bad
conditions:
Roads, paved
(% of total roads)
1994
1999
var
Brazil
8.1
9.6
19%
Chile
13.8
18.9
37%
Latin America & Caribbean
23.8
24.3
2%
Indonesia
53.8
46.3
-14%
Korea, Rep.
77.8
74.5
-4%
Philippines
16.6
20.0
20%
Thailand
94.7
97.5
3%
OECD -- High income
86.0
88.0
2%
 3.4% of the
production of nonexporting and
1.6% of exporting
firms’ are lost
annually due to
transport failures ,
 while 1% of sales
of non-exporting
and 1.2 % of sales
of exporting firms
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
Effectiveness
- Customs Reform Strategy
approved
- Selectivity level cut from 40% to - Clearance systems and
30%
procedures streamlined and
adapted to expanded Customs’
mission and selectivity cut to 20%
- Average gross release time
decreased from 5 to 3 days
(imports) and from 2.0 days to 1.0
day (exports)
- Average net release time cut by
20%
- Productivity improvement plan - Port authorities restructured and - Average cargo transit time
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%
2. Reduce Port Costs
and Delays
3. Reduce Transport
Costs on Federal Road
Network
- Law reorganizing Federal
- Output based
Transport Administration approved maintenance/rehab contracts on
and implemented
30% of federal road network
- Road network classification law - 50% of road network in good
approved
condition (as evaluated by the
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
Transport
- Geographical restructuring of
railway concessions underway
- 10% increase in non-road
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
Regulation
regulatory agencies (ANTT and
 PPP Law approved by Congress

Law on Career Development Plan
 5 Public-Private Partnerships
for Regulators approved by Congress
projects approved
 Amendments to Antitrust Law
 Increase in number of “hard-core”
approved by Congress
cartel cases with national impact
ANTAQ)
 PPP Law submitted to Congress
 Draft law on Career Development
Plan for Regulators submitted to
2. Enhance the Competitive
 Amendments to Antitrust Law
Environment
reviewed by inter-ministerial committee
Congress
successfully prosecuted
 Pre-merger notification made
mandatory
3. Simplify Entry and Business
 Constitutional amendment approved

Operation
to, inter alia, unify tax collection at
of tax collection approved by
federal, state and municipal levels for
Congress
Law regulating the unification
 Time needed to register a firm
decreased to 76 days in pilot cities
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
Framework
Amendment passed by Lower House
 Bankruptcy Law enacted
 Bankruptcy law becomes effective
 Increased speed of recuperation /
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
Competition


Draft Complementary Law,
extending application of
Antitrust to Banking, submitted
to Congress
Effectiveness of Banking
Competition Law

Examination of market
conduct issues in banking sector
by competition authority
initiated

Reduced bank administrative
costs components in bank
spreads
2. Sound Fundamental
Legislation and Systemic
Risk Control

Constitutional Amendment
(Article 192) approved

Key legal initiatives for
financial reform presented to
Congress




Legal framework and
physical infrastructure for
financial system modernized;
risks reduced and access to
financial services expanded.


New large value payments
system installed and operating
successfully
Evaluation of residual risk in
the payments system completed
Key legal reforms in financial
system voted by Congress
Second phase (retail)
payments system reform
launched.


Blueprint prepared for second
phase payments reform (retail
payments)
3. Mobilize Long-Term
Resources in Insurance
Sector
4. Improve Efficient
Financial Access for the
Poor and for SMEs

Regulations strengthened on
asset allocation, eligibility,
registration, custody and audit
requirements enhanced

Provisional law and
Resolutions passed to expand
financial access at banks
Extend permission for
provision of reinsurance to new
entrants
Accelerated expansion of
insurance industry assets on
sound basis

Enhanced service providers
in reinsurance

Evaluate impact of new
microfinance measures in terms
of cost, outreach and impact.

Passage through Congress of
new factoring law.


Introduce small claims courts
for small credits




Establish interlinkage of
credit registries
Enhanced use of positive
information for credit reporting
Reduction of tax write offs
for uncollected small claims
Bank accounts
(sight+savings) expanded from
95 (end 01’) to 103 million by
2006.
Increased credit availability
on sound footing to small
borrowers
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

Effectiveness
Congress
Innovation Law sent to

Innovation Law approved by
Congress

Number of technology
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


Environmental Markets
operational, and CDM project
monitoring systems financially
approval mechanism published
self-sustaining
Kyoto protocol ratified, ICCC
ICCC approval and

US$100 million in sales of
carbon credits