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After two years of the worst recession in the history of Brazil, when gross domestic product shrunk by more than 7%, the economy looks to be on the mend. Strapped for cash, with a balloon fiscal deficit, the government of President Michel Temer is looking to economic reforms, privatisations, and infrastructure investments to help strengthen the economic recovery.
It is doing this against a complicated political background with an ongoing corruption scandal involving the president. The Lava Jato, or Car Wash Investigation, into kickbacks at national oil company Petrobras, and elections due next year. The FT Brazil team spoke to some of the key policymakers and executives of Latin America's largest economy, including finance minister Henrique Meirelles.
He express confidence that despite political challenges, the country is crawling back from recession.
Yes, the Brazil economy is already showing clear signals of recovery. There were already creation of jobs in the first eight months of the year with very clear indication of growth. We have already positive GDP growth. We are now getting close to 1% average. And end of the year compared to the beginning of the year, about 3%.
The national oil company, Petrobras, was hit by an earth-shaking corruption scandal under the previous government. Its chief executive, Pedro Parente, who took over last year determined to change the company's fortunes, said Petrobras has already changed, and that he would continue efforts to recuperate it.
Nowadays a completely different company. In terms of governance, in terms of integrity, in terms of compliance. A number of measures, a set of different measures, were implemented. So really, a completely different company in terms of these aspects, as well in terms of operations. We are now in the ninth quarter in a row in which we have a positive free cash flow.
So we are keeping our production curve actually projecting an increase in this production curve. So really, a company which is back on track.
All this comes as the country's biggest long-term credit organisation, Development Bank BNDES, is going through important changes. Brazil has passed a law that will eliminate subsidised long-term credit-- a mainstay of BNDES-- in exchange for market-based rates.
It's transcendental. No less than that, because Brazil for the longest time-- and is still is-- an abnormally high interest rate country. As the inflation rate has come down very, very nicely, I hope that the long-term market for borrowed funds will be born soon. It is a true recovery. But it's not a vigorous one yet.
And it's not vigorous because credit is still not exactly in traction, including investment credit. And then there is a political side to it. Uncertainty is now the name of the political campaign for next year.
But it's not a nasty uncertainty. It's just political uncertainty. People are basically willing to more wait and see. But those who take too long are probably not going to be drinking fresh water.
Brazil's once mighty emerging economy may slowly be recovering. But corruption and the lure of populism still hang over ahead of next year's presidential election.