August 2, 2005
js-2675

The U.S. and Brazil: Partners in Growth

The Honorable John W. Snow

Prepared Remarks

Rio de Janeiro, Brazil

August 2, 2005

Thank you, it's a great pleasure to be here.  I would like to thank Ambassador Botafogo and Cebri for hosting me today, and CNC for providing this venue. I'm happy to be visiting Brazil at this time of productive economic partnership between our countries.

The United States celebrates the good economic progress that Brazil has made in recent years. Your country is a leader of South American economies and a global example of how good policy leads to growth and economic stability – two things that have the power to, ultimately, change millions of lives.

Only economic growth raises living standards over the long-term. Only growth creates jobs. By increasing opportunity and decreasing struggle, growth improves the human condition and alleviates poverty.

President Lula and his team are doing a superb job, and my relationship with Minister Palocci is one that I value very much. He has an inspiring long-term vision for this country's economic health, and I enjoyed the chance to see him in Brasilia yesterday.

Minister Palocci and I feel honored to work with each another on behalf of the people of both our countries. As I'm sure you know, we have consulted regularly on policies that promote economic growth through the U.S.-Brazil Group for Growth, which was established at the first summit between President's Bush and Lula in 1993 with the purpose of advancing pro-growth policies in both countries.

Today Minister Palocci and I will sit down to hold the 4^th meetings of the U.S.-Brazil Group for Growth. We will talk about our economies and the global outlook, the benefits of trade for growth, infrastructure, and research and innovation. 

Because of my previous experience with a global transportation company, I have a special interest in the subject of infrastructure. I understand how important it is for enabling growth and job creation.  We have come to Brazil with some ideas for facilitating the development of high-quality infrastructure projects, especially by catalyzing private investment.  It is my hope that we can work together to advance some productive initiatives to benefit Brazil and the rest of the Hemisphere. 

I had the pleasure of meeting with President Lula yesterday as well, and we had a good conversation about the good economic policies that the government has put in place.

I can't help but to be optimistic about your future. There is a clear record of achievement in stabilizing the economy, withstanding considerable market turbulence and igniting growth.

You know the facts, but they bear repeating: Brazil's growth rate last year was 4.9%--the largest growth rate in 10 years. Your current account surplus reached 1.9% of GDP in 2004, driven by a record trade surplus of $33 billion (5% of GDP).  Your export performance is continuing in 2005:  in the 12-month period leading to June 2005, Brazil's exports totaled $107 billion--an historic peak.

Your central bank has taken strong action to reign in inflation.  After peaking at 17.2% in early 2003, trailing 12-month inflation has been brought down to 7.3% as of June.

In 2004, Brazil's net public debt/GDP ratio registered the first annual decline since 1994, ending the year at 52%, down from 57% at end-2003.  The ratio declined further this year to 51% in June.

These economic indicators are positive, but of course they do not tell the whole story. The most important story is the one about the improvement in the lives of the Brazilian people.

More people in Brazil are working. The unemployment rate is 9.4%, down from 11.7% a year ago and stands at the lowest level since October 2001.  And over the past 12 months, 1.45 million jobs have been created.

Credit reforms passed last year by congress helped lead to credit growth to individuals of 30% last year--the highest growth rate since the 1996 when the data was first published.

Real wages in the manufacturing sector rose 10.5% in end-2004 compared to end-2003--highest rate since 1995.

Consumption growth last year was a strong 4%.

And these are the numbers that illustrate the improving human condition for the people of Brazil. Brazil's policies have met the most important tests: they are producing results, their benefits are widely shared, and they build a foundation for the long term.

Brazil today is clearly steering its own course.  Brazil made the sensible decision not to pursue another IMF program which was not needed.  And they are repaying the IMF early – an unmistakable sign of strength.

The Brazilian example is a counterpoint to those who argue that market-oriented reform is too hard, reform doesn't work, or that reform is part of the problem. 

With lackluster growth in some of the largest economies in the world – in Europe and Japan – Brazil's contribution to growth is welcome. It is important. And it is an example to other countries.

One of the highlights of my visit was a meeting I had with venture capital investors and recipients yesterday. They hold the promise of injecting a lot of dynamism and energy into the economy in creating jobs and growth well into the future. Venture capitalists are people who are risking their assets on Brazil's future, so I was pleased to see that they are betting on success.

The city of Vitoria in Espirto Santo is another example of progress in Brazil. That's why I am going to visit there during my time here in Brazil.  I want to see the remarkable results of Governor Paulo Hertung's reforms.  His fight against corruption, tax and budget reforms, and other improvements to the investment climate have turned that city around.  I want to go there to highlight what is possible if there is determined leadership committed to letting entrepreneurs create opportunities and jobs.  

Our economic relationship, in pursuit of growth, has evolved over time. Trade between our two nations has expanded significantly. For example, remember that trade between Brazil and the U.S. was $13 billion back in 1990, but totaled $35 billion last year. 

The investment flows between our economies go in both directions, which is so important. U.S. FDI in Brazil totals $33 billion (up from an accumulated U.S. direct investment in 1990 of $14 billion) and Brazilian companies have direct investment positions in the U.S. totaling $1.3 billion (compared to total Brazilian direct investment in the U.S. in 1990 of $377 million.)

In some sectors, U.S. investment has made a major contribution to Brazil's productive capacity.  U.S. accumulated investment in manufacturing is $12 billion (including $3.5 billion in the chemical industry) and $7 billion in the financial sector.

Trade and investment ties have built a strong partnership between our two nations, and the potential for the future is great.

It is also important that we work together to maintain the integrity of the global financial system by keeping dirty money out of the financial sector.  Brazil is a member of the Financial Action Task Force, which is the premier international body that sets global standards to combat money laundering and terrorist financing, and has taken a very active role in the organization.  

With the foundation laid by good economic policies, Brazil can become a sustained growth engine for the region and for the world, and I am convinced that closer integration between our economies and within the Hemisphere is key to boosting both Brazil's growth and our growth.

Integration goes beyond merchandise trade and investment.  Some of the most important connections between our societies encompass exchanges and educational opportunities that benefit our young people.  There are ­­­­­­­7,800 Brazilian students currently studying in U.S. universities.

Our connections help both our societies become more productive through R&D flows in both directions. 

One of the most important connections is the flow of remittances to supplement the earnings of Brazilian families.  Last year, Brazilian workers living abroad sent home $5.6 billion--much of it coming from the U.S.--to relatives and friends here.  This can be an important stimulus for consumption and investment in this country, and ultimately leads to growth and job creation.

Thank you so much for having me here today. I hope the Brazilian people know how much confidence we have in you, and that the United States will be a partner in facing the challenges and risks ahead.

When I return home, and whenever I meet with economic leaders from around the globe, my message will be clear: Those who question the benefits of market-oriented reforms should come to Brazil.

Thank you.