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Thank you Mr. de Souza (President, American Chamber of Commerce). It is a pleasure to meet with the American Chamber of Commerce today, during my first trip to Brazil as the Secretary of the Treasury.
I am here because we see a moment of real opportunity for strengthening relations with a country of vital importance to the U.S. As you in this room know, our commercial ties are already strong. U.S. investors account for nearly one out of every four dollars of foreign direct investment in Brazil. And I am confident these linkages can be greatly increased.
Our shared interests extend beyond our bilateral ties. Brazil and the United States share responsibility for economic progress in the entire hemisphere. We have an opportunity together to drive economic growth and to raise living standards for millions of people.
President Bush is intent on seizing this opportunity, because it is in our mutual interest to do so, but also because Brazil has dynamic, new leaders who can be partners for strengthening growth.
Our relationship is a mature partnership. Our nations agree on many issues as major democracies, as important market economies. But we also have our differences, most recently with respect to the debate over Iraq. We are disappointed with the lack of support we received on an issue so crucial to my country. But in a mature relationship it is important and healthy to recognize our differences, to turn the page, and to be certain that we continue to strive for understanding and progress in areas where we do agree.
President Lula and his team have already demonstrated extraordinary leadership in setting their economic course. Their agenda is both broad and ambitious.
I have seen first hand the evidence of this leadership. I met again this week with Finance Minister Palocci and Central Bank Governor Mereilles, continuing a good discussion we began when we met two weeks ago in Washington. I am immensely impressed with their command of the policies to keep Brazils economic program on track. And later today I am looking forward to meeting President Lula.
Brazils leaders are focusing their energies on both growth and poverty reduction. Some people seem to think you must choose between these goals. I do not. Rather, I see these as mutually reinforcing objectives. The policies that spur private investment create productive jobs, and this is the only effective way to reduce poverty. At the same time, lifting people out of poverty builds their stake in a lawful, democratic, stable society, the kind of society where people are willing to invest for the long-term.
The roles of the public and private sectors embodied in the Lula Administration agenda make sense to me. Government must provide a stable policy framework that allows people to risk their capital. Government must also provide essential services that the private sector cannot. And the private sector must be the primary engine or agent of growth and job creation.
Nowhere is the emphasis on a stable policy framework more evident than in Brazils macroeconomic policy course. I was reminded this week of something President Lula said at his inauguration: You must first plant the seed before you can pick the fruit from the tree. The seeds the Lula Administration is planting include an aggressive attack on inflation and a focus on reducing the nations debt burden. As any farmer knows, patience can be as essential as sunshine and water, but it appears that these seeds are already bearing fruit: the Real has strengthened; the nations risk rating has reduced significantly; and inflation is falling. The world is regaining its trust in Brazils economy.
Importantly, the new government did not stop at stabilization. There are more seeds to plant. The Lula team focused right from the start on other critical building blocks for sustained growth: tax reform, pension reform, and central bank autonomy. By tackling these issues early on and by reaching out to build political consensus, this government is crafting a strategy that is effective in both political and economic terms, one which can accelerate tangible economic returns.
For President Lula, reaching out includes extending a hand to those at the margins of society to integrate them into the productive economy. The fight against hunger, Fome Zero, will be difficult but no effort is more important. It is essential to build a more cohesive society and to boost the productivity of people, especially children, who can make an enormous contribution to Brazils future.
No less significant is the governments commitment to fulfill the dream of home ownership to residents of the favelas. Property ownership is an essential building block for stable, sustained economic growth. Owning property, owning a home, fundamentally changes the attitudes and behavior of people.
It helps to generate a sense of responsibility to the community as people gain an equity stake in their neighborhoods and their cities. Holding title to property unlocks enormous potential for income and wealth generation because it can give them access to credit. Press reports quote a widow with two children living in a Rio slum: If I could just get some credit, I could expand my shop and put a bathroom in my house and rent a couple of rooms out to tenants. Right now, I dont have the means to do that because nothing I have is recognized as valid by the legal system. Property is a real asset and a first step toward the development of a mature banking system and mortgage market. I often remind people that in the United States our mortgage market has, among other benefits, served as an important shock absorber and a source of growth during economic downturns.
Responding to the needs of the poor is more than a simple act of compassion. With appropriate policies it can also be an investment in a nations economic potential. To be most productive people must not want for food or water or electricity. Education is essential. People must be healthy and safe from crime. They must have a place they can call home. They must have every door of economic freedom open to them. Giving the people these opportunities and combining them with sound macro and micro economic policies will allow Brazil to realize its potential as an engine of growth in this region and as a global leader in the pursuit of development.
We have said that each country must pursue strong economic growth in its own way. Brazil has developed its own strategy for growth. In the United States we are also pursuing strong growth. We know that the United States, as the worlds largest economy, can raise growth in this hemisphere and the world. The U.S. economy has not grown as fast as we want it to and thats why President Bush has proposed a plan that will generate economic growth and create new jobs.
Among other things, the Presidents plan would speed up the reduction in marginal income tax rates and eliminate the double taxation of dividends paid to shareholders. The reduction in marginal tax rates is the most effective tool to increase economic growth in the United States right now. Eliminating the double taxation of dividend income is a fundamental reform that will have the benefit of boosting values in the stock market, increasing investment and encouraging companies to pay more dividends. This is the right plan for the U.S. economy and we are fully committed to working with our Congress to pass the Presidents plan in full.
We want to be partners with Brazil as we work to pursue a growth agenda. President Bush has proposed a bilateral Summit this year and President Lula has agreed. We at Treasury and our counterparts in Brazils Ministry of Finance are thinking about ways to foster productive bilateral discussions aimed at accelerating growth in both countries. A frank and creative dialogue on growth-generating strategies is long overdue, and so we have begun this dialogue.
We are already working together to liberalize trade throughout the hemisphere, boosting growth in the process. The United States and Brazil are co-chairing the final stage of negotiation of the Free Trade Area of the Americas agreement, so we share a responsibility to bring the benefits of open trade to all nations in the hemisphere.
I know that prospect of a trade agreement has sparked much debate here in Brazil so let me take a moment to clearly state my thoughts on trade: our goal is comprehensive trade liberalization and all sectors are on the table. In this pursuit we know that Brazil, the United States, and every nation in the Americas will seek the best possible deal it can negotiate in the best interest of our nations. That is how it should be. There are skilled negotiators here in Brazil in fact President Lula himself has terrific experience as a negotiator. My country has skilled negotiators as well. So negotiations will be tough. But if we all keep our eye on the prize expanding trade and eliminating barriers each nation will win, and millions of people will be better off for our efforts. This is the essence of the negotiating process.
The United States is offering to eliminate its import duties on the vast majority of industrial and agricultural imports from the Western Hemisphere immediately upon entry into force of the FTAA. We also are offering broad access to our services, investment and government procurement sectors. Treasury plays a leading role in these negotiations on investment and financial issues and we look forward to making progress in these areas.
One study by the University of Michigan estimates that a Free Trade of the Americas agreement would increase gross domestic product in the Western Hemisphere by $78 billion per year. The experience of the three North American Free Trade Agreement (NAFTA) economies is encouraging in this regard. Trade has flourished under NAFTA. In fact, more than 3.5 million trade related jobs have been created in Mexico alone since 1995.
We want the international financial institutions to be as helpful as possible as Brazil pursues stability and higher growth. As you know, we vigorously supported additional IMF lending to Brazil in September because we believed that the new government would reflect the will of the Brazilian people to pursue sound policies. I think events since then have demonstrated that this was the right judgment.
The international financial institutions can also use their capacity building and financing to catalyze lending to the private sector. Despite Brazils sizable, sophisticated financial sector, many small businesses have little access to lending. We know that the government and central bank are working on structural barriers to lending, such as creditor rights. We would like to be helpful in this area.
We are asking the Inter-American Development Bank to use its resources and know-how to help overcome these barriers and expand lending to small and medium enterprises in the region.
A combination of grants for technical assistance and loan officer training, combined with on-lending facilities, can create more sustainable lending by local banks to serve smaller companies.
And on social sector issues, our governments are working together to identify best practices in the fight against hunger and HIV/AIDs. Other areas where we want to continue and expand our cooperation are education; science and technology; the environment; and disease eradication.
I came to Brazil with the intention of learning first-hand how Brazil is building strong economic policies, addressing the needs of its people, and promoting economic growth. I come away from my visit with greater confidence that this government has the courage, leadership and creativity to make major changes to generate major gains for the Brazilian people. The United States is resolved to work in partnership with our Brazilian friends in the interest of both countries and the region as a whole.
Thank you.