Gerdau SA : Brazil Needs Additional Measures To Combat 'Dutch Disease' - Executive
03/08/2012| 04:04pm US/Eastern
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Brazil needs to introduce additional measures to boost its industrial competitiveness which is being eroded by the so-called "Dutch disease," a leading Brazilian industrialist said Thursday.
"Dutch disease" is an expression describing an economic phenomenon whereby some sectors of a country become uncompetitive due to an overvalued local currency. The term derives from the Netherlands' experience with the situation in the 1960s.
Brazil's industry is failing to compete because of high foreign-currency inflows which have led the Brazilian real to appreciate, said Jorge Gerdau Johannpeter, chairman of steelmaker Gerdau SA (GGBR4.BR).
Cumulative tax systems also restrict Brazilian companies' competitiveness and need to be corrected, said Gerdau Johannpeter, who is also an adviser on industrial competitiveness to a government committee.
Brazil's 2.1% decline in industrial production levels in January from the previous month, announced this week, serve as "an alert", he said.
While Brazil's federal government has since last year introduced various tax measures to stem currency inflows, more measures are needed at both federal and state levels, he said.
Brazil's economic growth rate is directly linked to investment in savings, which fall short of the desired levels, the executive added.
For this reason the government leans on international savings to finance essential growth, which is provoking the currency inflow, Gerdau said. Insufficient savings are also leading to serious distortions in the country's social security and retirement-benefits system, he said.
"Brazil won't become a developed nation on ore and soybean exports," Gerdau Johannpeter said.
-By Diana Kinch, Dow Jones Newswires; 55 21 7564 4495; diana.kinch@dowjones.com
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