LatinFinance - Special Edition - August 2013 - 71

does not mean that we can take too long,”
he says.
But he says progress is being made. “Brazil has already taken some important steps,
such as the fiscal responsibility law... Yes,
there is [an appetite for reforms].”
the Brazilian current account deficit
– which is in excess of 3% of GDP – is still
“sustainable”. He says: “it is still compatible with the level of fDi, despite the fact
that [the deficit] this year will be somewhat
higher, which is affordable.”
a sharp drop in Brazil’s currency, the
real, has alarmed many observers, but
meirelles remains unmoved, saying it
simply reflects a normal process of rebalancing. While the depreciation may be a
challenge, it is nevertheless “necessary”
and the process “simple,” he says. “the
change in the exchange rate reflects the
drive towards rebalancing the current account balance to a more sustainable level.
With the real moving from 1.8 to the dollar,
to 2.2 or 2.3 or more, it is part of the rebalancing.”
“We are going through a process of
change in the relative prices in the economy. the part of the society that produces
tradable goods are gaining income, relative
to the ones who consume tradable goods
and produce non-tradable goods, including
services.”
even the dramatic collapse of the business empire of eike Batista, following
several heady years for the Brazilian corporate world, fails to trouble meirelles. “this
is the normal course of business. corporations and entrepreneurs raise money. they
have to deliver results. and if they don’t do
very well, stock prices fall. it is as simple as
that. one has to deliver what it is supposed
produce. there is nothing new here, there
is no earth-shaking event.”
Brazil still first
in latin america, Brazil is seen as less
market-friendly than mexico, which has
embarked on an ambitious economic
reform program.
“at the moment mexico is probably the
[regional] star. Definitely it is addressing
some of its key problems. We must congratulate it,” says meirelles, adding that the
country should be an inspiration for the
rest of the region.
But he rejects the suggestion that mexico
could become the largest latin american
economy. that title, he says, will remain
Brazil’s – no matter the challenges at
hand. LF
to read more, see www.latinfinance.com

Venezuela must not squander the opportunities to increase competitiveness as it integrates into Mercosur, the country’s former
central bank president warns. By Katie Llanos-Small

Ruth Krivoy
Love thy neighbor
Venezuela’s integration into South american free-trade area mercosur presents a
“big threat” to Venezuelan companies,
without significant reforms to make the
economy more competitive.
So says Ruth Krivoy, the country’s former
central bank president, who insists in an
interview with LatinFinance that having
joined the trade bloc, Venezuela now has
a window of opportunity to implement
sound policies – and adapt.
“there is a drive now in Venezuela to
really turn mercosur into an opportunity
for local business, instead of a threat,” says
Krivoy, who ran the central bank between
1992 and 1994. “if we don’t do anything it’s
a big threat. if we learn that now that we’re
there we need to change, it will be an opportunity.”
Venezuela’s acceptance as the fifth
member of the South america trade bloc –
which includes argentina, Brazil, Uruguay
and Paraguay – was agreed in principle in
2006, although the country wasn’t formally
admitted until six years later. Bolivia is
slated to become the sixth member and the
door also remains open to ecuador.
Since the death in early 2013 of former
president Hugo chávez, the trajectory of
policy in Venezuela’s heavily state-run
economy has been unclear under his successor, nicolás maduro. But Krivoy says that
reforms to place the economy on a sounder
footing are unlikely, given a challenging
political climate.
“President maduro’s government has
realized the need for more pragmatism
in managing the [currency] controls and
trying to correct some distortions especially
with the exchange rate,” says Krivoy in
reference to a new mechanism to control
foreign exchange flows, SicaD, which was
introduced in early 2013.
“But it’s hard to envisage significant
changes because i don’t think they’re ready
to really deregulate or turn around the
course of events. they’re constrained by

the need to portray the image of the continuing Bolivarian revolution. they can’t
afford to lose support of the people ahead
of the December [municipal] elections.”
Krivoy, now at Síntesis financiera, a
consultant firm for GlobalSource Partners,
says inflation is likely to hit 45% by the end
of this year, and to stay at a similar level
next year. the firm calculated year on year
inflation to be 39.6% in July 2013, the highest level since chávez took office in 1999.
Investment needed
the country’s most profound challenge is
the lack of private investment, says Krivoy.
that stems from “overregulation, weak rule
of law, challenges to property rights, a very
intrusive price control system that tries to
micromanage profits, margins between
producers, wholesalers, retailers and so
forth,” says Krivoy. “that explains why the
economy has really not made much progress.”
as for other trade relationships, Krivoy
expects agreements with china to continue.
Venezuela sends around 500,000 barrels of
oil daily to china, which has offered loans in
an increasing number of sectors, including
for industry and ports.
How much oil Venezuela will continue
shipping to its neighbors though is less
clear. Under chávez’s Petrocaribe plan, the
country has offered large quantities of oil at
knock-down prices to caribbean countries.
“We’re probably nearing the time at
which this program will start pulling back
slowly,” says Krivoy. a need for cash at the
state oil producer PDVSa will ultimately
determine the extent of exports. But the
political costs could be high.
“maduro’s leadership in the caribbean
may suffer if he starts cutting back on the
supplies of oil,” she says. “So you have
contradicting forces working there. it’ll
probably be slow. it won’t be announced – it
may take place by just cutting back volume
here and there.” LF
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