Brazil's President Michel Temer, speaks during an interview with the Financial Times at his office in Sao Paulo, Brazil, January 31, 2017.
Brazilian President Michel Temer © Nacho Doce

Brazil will press ahead with an economic reform programme that helped make its stock market and currency the strongest performers in emerging markets last year, President Michel Temer said.

In an interview with the Financial Times, he also warned about the dangers to the region of a trade war between Washington and Mexico and indicated that there was fierce interest in the country from China as it seeks to cement its place as the region’s largest trading partner ahead of the US.

Since Mr Temer’s centrist, pro-business government came to power following the impeachment of leftist former president Dilma Rousseff in August for manipulating public finances, it has passed a landmark law limiting future increases in budget spending to zero in real terms; started difficult pension reform; and is now planning to pass three more reforms to education, labour and tax laws before the next elections in 2018.

“I think it [the reform] programme, will achieve its targets. The spending limit was passed in near record time. We approved what was an extremely difficult reform in four and a half months,” Mr Temer said.

Brazil's President Michel Temer, speaks during an interview with the Financial Times at his office in Sao Paulo, Brazil, January 31, 2017.
Speaking at his private legal chambers in São Paulo, President Michel Temer said of his tough austerity measures: "I would prefer that instead of being applauded now [for unsustainable populist spending] to be applauded later on, that is my objective" © Nacho Doce

Latin America’s largest economy suffered its second year of deep recession in 2016, shrinking at a rate of more than 3 per cent. But its currency has strengthened more than 20 per cent over the past 12 months against the dollar and the stock market rose 37 per cent in local currency terms on bullishness over the reforms.

Many analysts are sceptical that the rally can last and point out that an expected economic recovery this year will be anaemic at best, with a survey of economists by the central bank pointing to growth of 0.5 per cent.

Meeting in his private legal chambers in São Paulo, Mr Temer, a 76-year-old constitutional lawyer, acknowledged the recovery would be slow with industry operating at undercapacity and unemployment, which hit a high of 12 per cent in December, taking time to fall.

But he said the government was taking stimulus measures, including the injection of up to R$30bn ($9.6bn) from a central employment guarantee fund into the economy and efforts to lower the country’s credit card rates, which are among the world’s highest at up to 480 per cent.

“We are coming out of recession,” Mr Temer said.

The reform to the country’s generous social security system that will lift the retirement age from the current average of about 54 years to 65 years could be passed into law as early as the second quarter of 2017, Mr Temer said.

The government was also aiming to pass a law this year to tackle Brazil’s rigid labour code, which employers argue deters hiring, and the country’s moribund school education system which produced results near the bottom of global rankings. Once these reforms were passed, the government would try to simplify the country’s convoluted tax code, often cited as a key reason for Brazil’s lack of competitiveness, he said.

Despite the reforms, his government remains one of the most unpopular in recent Brazilian history, with only 15 per cent of those surveyed in a recent Pulso poll approving of the president.

Demonstrators hold placards and chant during a march against President Michel Temer's government constitutional amendment (PEC) 241, in Rio de Janeiro, Brazil, on October 17, 2016. Approved by Brazils lower house, the constitutional amendment limits budget increases to the rate of inflation for the next 20 years. Leftist lawmakers had fought against the spending cap, arguing that it would dramatically worsen conditions for ordinary Brazilians, especially the poor. / AFP PHOTO / YASUYOSHI CHIBAYASUYOSHI CHIBA/AFP/Getty Images
A protest against President Michel Temer's reforms in October. His government remains one of the most unpopular in Brazil's recent history © AFP

This was because his government was taking tough austerity measures that would leave a positive long-term legacy, not engaging in the “fiscal populism” of previous governments that left Brazil running a 10 per cent deficit, said Mr Temer, who has pledged not to run for another term in 2018.

“I would prefer that instead of being applauded now [for unsustainable populist spending] to be applauded later on, that is my objective,” he said.

But another of the other reasons for his government’s low popularity is a sweeping investigation into corruption at state-owned oil company Petrobras that has implicated many members of his government and party, including the president himself.

The supreme court is holding testimony from 77 executives of construction company Odebrecht, which includes an allegation that Mr Temer sought illegal donations for his PMDB party when he was party president.

Mr Temer said he had only sought legal donations. “I am feeling absolutely tranquil” about the investigations, he said, pledging that there would be “zero” interference from his government in the case.

On the policies of US President Donald Trump, Mr Temer said a trade war between the US and Mexico could be disruptive to regional trade as a whole and “would not be useful, we think, not for the US, not for all the countries in . . . Latin America”.

The US is Brazil’s second-biggest trade partner and an important market for Brazilian manufactured goods, such as civil aircraft.

Economists say a withdrawal from regional trade by the US would create more opportunities in Latin America for China, which is already Brazil’s biggest single trading partner. 

Mr Temer said Chinese companies were strong contenders for 34 concessions for ports, airports, roads and other infrastructure projects being offered by his government. 

“They [the Chinese] are coming to Brazil in a big way . . . and they are very interested in these concessions,” he said. 

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