Brazil reforms corporate governance

During a period of recession that has hit most of the world's influential economies, Brazil has still managed to develop a strong corporate governance programme that builds on legislation changes and promises to protect the country should future global financial problems occur.

Deloitte has worked hard in building Brazil's corporate governance, a process which is designed to withstand another battering from a global recession, strengthen the country's long term financial and produce an economy that is attractive to investment.

The reputation and status worldwide enjoyed by Deloitte for being innovators in their market has seen them help the 140 countries it operates in to create a foundation and method to deal with problems within the financial sector.

From its base in Brazil, Deloitte has helped the South American country to launch itself as a leader in the world market through its thriving and strong internal market.

Recent years have seen dramatic changes in Brazil's financial and political system, with radical reform following a period of structural analysis of the country's infrastructure.

The introduction of perhaps one the most important business developments in its history, the 2005 Company Recovery and Bankruptcy Law, created a structure which saved Brazil from baring the full force of the global recession and set about Deloitte's campaign to change corporate governance to better the business market.

Luis Vasco Elias has been at the forefront of the campaign, encouraging the country to fully accept that changes needed to be made in order to encourage growth and most importantly stability.

“We realised around 12 years ago that important changes needed to be made to our financial system.” explains Elias. “These changes were started by our previous Government, who realised that we needed to create stronger regulations in order to protect investors and creditors.

“Previous attempts at reform were never long-lasting. They worked for a short period of time and then stopped. The recent reforms put in place, however, are strong but there is still much to do.”

Brazil's Government seemed to prophesise the global recession by making the changes before it fully hit in 2008, ensuring that the country already had a plan in place.

“Our country had 25 million people that crossed the poverty line,” said Elias. “We had a very bad income distribution, with 80 to 90 percent of the population having weak salaries and this was mainly due to deflation. Now, we don't have inflation anymore. It's all controlled.

“The Government created measures to reduce the taxes on servicing cars, and on white line products, such as household items. The decrease in prices helped 25 million people who were on the poverty line and, with a banking system reform introduced to help stabilise our currency, created the strong internal market we have today.”

Improvements in restructuring process
The Brazilian Government's restructure of the tax system also saw struggling regions of the country benefit, as they offered companies a strong tax reward for moving from the South to the North-East. The land in the South began to become increasingly expensive as companies earned more money. The Government therefore offered discounted taxes in the North East to encourage businesses and their investors to move to the region, perhaps contributing to it being recognised as the most prosperous part of the country in Deloitte's 2010 Business Outlook Survey.

A monetary reform was also introduced during the changes and this allowed the stabilisation of Brazil's currency; something which many global economies longed for.

Indeed, it is important for the country to gain stabilisation as soon as possible, as the world's eyes will be firmly fixed there over the coming few years. Both the World Cup 2014 and Olympic Games 2016 are to be held in Brazil, and with the current reforms steadying the economy, Elias believes there is still much work to be done to prepare for these events.

“Although poverty is diminishing and our population is steadily becoming richer, we need still need reforms elsewhere. Labour and social sector reform is essential, as are the political and legal sectors. We need to also improve our transport systems in order to prepare for the World Cup in 2014 and the Olympic Games in 2016.

“We don't have a successful health system and financial costs have actually increased a lot. We want Brazil to play a big role in the international arena and this can only be achieved with further reforms.”

Perhaps the biggest indication of Brazil achieving global recognition is its export level. Currently, the country is the biggest exporter of coffee in the world, but Elias feels that this is not enough; that they must develop their productivity in other industry sectors.

“Brazil shouldn't be looking to only export commodities,” comments Elias. “We need to increase our exporting to other areas. The recession caused many problems for our exporters and suppliers. We used to have a thriving connection with the US and Europe, who purchased our machinery, but this has decreased, causing many problems.

“To fully withstand another recession, we should export goods with a higher value and attract countries and companies who we can give a better benefit to. We should interacting with businesses and countries that focus on technology, so that Brazil can also benefit.”

The country has already begun to invest more in education, so that it too may prosper from increasing technological advances and increase its attractiveness to foreign investors.

“We reduced financing costs and increased our foreign to encourage interaction with other countries. It has helped and will continue to help to push us onto the global stage.

“Our currency is very strong, as is our internal market, and this certainly is appealing to foreign investors.”

Incorporating the “new” law
Encouraging investment is the key reason why Brazil has managed to overcome the recession and create a reform that will hopefully last for generations.

The “New” Law of Restructuring and Corporate Restructure has not only caused waves within Brazil, but has also created discussion worldwide.

Elias explains, “This new law introduced important measures to protect creditors. We had a very weak system, where creditors didn't have participation in the level of recovery for a business.

“The new law now increases protection for the creditors and they have an important role in the recovery process.”

Helping companies through the bankruptcy process is key to turning a flailing economy around; giving extra time to pay off debt before the seizing of assets whilst also protecting investors, which is essential.

“The previous law had a lot of flaws. If you invested in a company, you received all the debt and this applied to new owners of a company too. Now, however, this is disregarded.

“Also under the new law, if a company files for bankruptcy they get 180 days in which to give money to the creditors. All investors' money is safe, regardless of whether or not they invest after the filing for bankruptcy process has begun.

“Previously, when a company couldn't pay debt, some felt very bad about it but now because of maturity, people have realised that it is not something to be ashamed of: it's something that happens. The important thing is how you can fix the problem, how you manage the situation and how you begin the recovery.”

Increasing protection for investors and creditors stands to further increase Brazil's profitability to foreign investors. The country will now be viewed as prosperous, innovative and perhaps even recession-exempt.

Elias believes that further measures must be taken to ensure this, however: “Brazil needs to reach our full potential. We were helped by our strong internal market previously, but we now need to concentrate on exporting a wider range of goods.”

Being a strong economy is important now more than ever and Deloitte plans to contribute to suggesting further ideas to the Government to prevent the country turning back on its excellent work.

“We have good reserves, a good internal market and our population is increasingly gaining a higher income, but corporate governance is very important. It is something we put a lot of effort into promoting in Brazil, not only to increase internal investors but to also encourage foreign investors.

“We hope that other countries can look to Brazil as a benchmark; that we have good companies and a fantastic market to invest in.

“What we have already conquered is not enough. We need to keep this reform going, so that Brazil may ultimately prosper and grow into a leading market on the global stage.”

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