In Brazil, the most important result of 2019 comes from the pension reform, for years considered indispensable for the future sustainability of the public budget. The approved measures, including raising the retirement age for men to 65 and women to 62, are expected to result in savings of $196 billion over the next 10 years. Indeed, the high cost of the pension system has been one of the causes of the country's high fiscal deficits, a trend exacerbated by slow economic expansion and an aging population. Furthermore, further reductions in public spending are expected in the coming months, in line with the current liberal economic programme: the risk is that an excessively restrictive fiscal policy will be implemented, justified by the idea that austerity could have a positive effect on growth. However, so far there have been few cases of expansive austerity and an excessive reduction in public demand in the current international context could be counterproductive: the recent US-China trade agreement, which established that Beijing must purchase 32 billion of agricultural products from US over the next two years, could negatively affect the Brazilian trade balance, since about 14% of Brazilian exports to China are agricultural products, mainly soybeans.
The International Monetary Fund (IMF) estimates that Brazilian growth was 2019% in 1,2 and expects an increase to 2,2% for this year, Coronavirus permitting. In 2020, inflation is expected to remain low and the current account deficit to remain low. The most important macroeconomic imbalance will still concern public finances: at the end of the year the total public budget deficit will be equal to 6,9% of GDP and public debt will reach about 95% of GDP. The government has also been active on other economic fronts, including privatisation, selling more than $23bn of state-owned assets in 2019, and implementing deregulation measures. One of the next major challenges is the reform and simplification of the tax system. In addition, the government has two other reforms on its agenda, which seem likely to be approved in 2020: the autonomy of the Central Bank and a new legal framework for the foreign exchange and capital markets in Brazil and Brazilians abroad. Public finance sustainability remains an important objective for the country, but there is no urgency dictated by a situation of balance of payments crisis, on the contrary the country has huge foreign currency reserves and foreign direct investments cover the current account deficit. Simple austerity not only risks stunting growth but also creates a headwind for reducing inequality. A reduction in public spending, which would probably be followed by a reduction in taxation, would reduce the redistributive capacity of fiscal policy, i.e. the capacity to improve the economic and social condition of millions of Brazilians.
If we broaden the observation spectrum to Colombia, we note an emerging economy among the most affected by terms-of-trade shocks, since the Andean country still depends 80% on the export of raw materials, in particular oil, coal, coffee and gold. Thanks to shrewd macroeconomic policies, the fourth largest Latin American economy has in any case managed to avoid entering a recession so far and has begun a recovery path that has intensified in recent quarters. In the last forty years, Colombia has experienced only one year of recession, 1999, which coincided with the loss of the investment grade rating, regained only in 2011. It is interesting to note that Colombia is also the only one among the main geographies of South America not to have been involved in the debt crises of the 80s: the last default on foreign debt dates back to 1935.
However, the brilliant results in the economic field have not protected the country from the wave of protests that has shaken most South American countries in recent months. Since the nationwide strike on 21 November, Colombia has been affected by widespread protests, though mostly non-violent in nature. What emerges, also from the recent local elections in October 2019 which highlighted the widespread affirmation of anti-establishment parties and movements, is the request for a new political offer, since the current one has not been able to provide citizens convincing answers to long-term problems such as corruption, inequality and the fight against drug trafficking. Prolonged protests are jeopardizing the ambitious plan of the current executive, aimed at increasing the country's competitiveness to make it more resilient to external shocks. The 2018 tax reform provided for both the progressive cut in corporate income taxation (from 33% to 30% by 2022) and the possibility of fully recovering taxes on imports of capital goods: these measures have the objective of structurally strengthening the local production system, to raise the growth potential and at the same time reduce the current account deficit, the main element of weakness from a macroeconomic point of view. Other measures go in the direction of improving the economic system through greater diversification and a greater contribution from the tertiary sector, a less volatile sector than agriculture and industry.
The evolution of the situation in Colombia is also of interest to Italian exporters. In the first eleven months of 2019, sales to Bogota increased by 11% compared to the same period of the previous year, for a total value of 616 million euros. The excellent performance is due not only to the recovery in the sales of instrumental mechanics (38% of the total in 2018) but also to the increase in the sales of food and beverage products, rubber and plastic items, electrical and electronic appliances. The increasingly diversified and sophisticated Colombian demand has been reflected in the performance of Made in Italy in recent years and offers interesting opportunities for the future: the recent update of SACE SIMEST forecasts in fact, it indicates a further average increase of 3,4% in the three-year period 2020-2022. A momentum to make the most of, without forgetting that the road is still long.
