 Welcome everyone to this press conference from the 47th annual meeting of the World Economic Forum here in Davos. Welcome to all of you here in the room. Welcome to our audience on the live stream. And of course a particular welcome to my panelists here which probably don't need an introduction here but I'll do it anyways. We're very happy to be joined by Enrique Mereles, the Minister of Finance of Brazil. And we're also joined by Ilan Goldfein who's the Governor of the Central Bank of Brazil. And you didn't come here to hear from me but you came to hear from the gentleman. So without further ado, Minister, give us a brief update on the situation in Brazil, please. Okay. There are some basic themes which are being discussed here at the forum these days. One of them which is one of the, which is polarizing, substantially the question of the middle class in the developed countries which is angry and voting accordingly as a result of a perception of not shared income. In summary, the result of the prosperity created by globalization is not being shared equally. There is a concentration at the top and et cetera. Basically, I pointed out that in the case of Brazil, we are in the different point of development in the sense that we are not earning or enjoying the profits or the results of a fully integrated globalization. We are still a closed economy and with, until now, somewhat level, higher than accepted level of government intervention in the economy. And then the challenge for Brazil now is, number one, make the basic reforms as you have described in other fora and have the country growing at higher rates. And then creating jobs, which is what is more important for Brazil now, job creation because they have very high rate of unemployment. In addition to that, we also have in Brazil something that some of the developed countries don't have, which is a safety net. In the case of Brazil, Bolsa Familia and all their social programs, that the other countries, the rich countries lack some of them, not all. The Europeans tend to have it, the Americans don't. But in summary, we do have tremendous challenge, we do have a very high unemployment, we must create jobs and evidently must be sure that we do all create jobs for the lower level income workers particularly. And having said that, I think that it came out clearly what our challenges are and what we are doing in order to face that challenge, but drawing the difference between the several levels of problems and the several levels of development. In the sense of the developed countries, which the developing one are emerging who are taking very strong advantage of globalization. And the ones who are not or have not taken advantage of that globalization, which is the case of Brazil, then we have to open more and evidently we are on the other side. We want to take advantage of the globalization, take advantage of the fact that we have or could have, we should have a lower cost of production. As soon as we have the labor reform implemented, et cetera, et cetera, and all the other productivity reforms. Thank you, minister. Governor Goldfein, over to you. In order to take disadvantage of the globalization issue, you need to do the reforms in order to do and I think we are in the process of doing them. Not only the fiscal reform that were approved and was sent to Congress, we have been doing microeconomic reforms. There are issues on working on the infrastructure investments and on the side of the central bank, we have been working on reducing inflation. Reducing inflation, as you know in Brazil we had a shock, we have events that brought at the same time lower activity and higher inflation and we have been dealing with this bad outcome in the last year. We are now in a position which is much better than last year. We've seen inflation going down from 11%, 10.67 actually, to 6.3, so it's a major decline in inflation just one year and we also have been working on what we're calling anchoring expectations. Basically, the people will look at the future and see that inflation in the next year, two years, three years is already on its way to the target. I'm saying it because beyond the reforms and the investment infrastructure, the microeconomic reforms, the central bank can start the easing process and that may help us also in terms of the recovery of the economy. We expect the economy to recover this year, have positive numbers and that is quite important for us. With this, I will pass back your... Thank you very much. Without further ado, we have a full house here today. Let's open the floor for Q&A. We have a microphone. So for the sake of our online audience, if you could wait till the microphone reaches you and you could state your name and organization, please. I think we have a question from the lady over there. Microphone is on the way. Yes, hello, my name is Sir Marin Peters from Swiss Public Radio. My question would be how worried are you about the strong and even increasing dollar? Thank you. Can you repeat that? How worried we are about? About the strong dollar. The strong dollar. Strong dollar. Let me start and then you compliment. We have a floating exchange regime and the floating exchange regime is a buffer. That's our first line of defense. Strong dollar means that our currency will fluctuate. We've seen immediately after the US elections, we have seen our currency depreciate. But since then, since the first days of the elections until now, we basically saw a complete reversal of the depreciation. And one of the reasons is that the strong dollar comes with the perception that it may be the case that the growth will be higher in the world because of possible some fiscal expansion. But it also meant for some of the emerging markets that commodity prices have gone up. In the case of Brazil, some of our commodity prices went up. And that meant that beyond our reforms and our issues that we are advancing in the country, we're also having some benefit from the fact that the strong dollar is a consequence of the fact that the world is seeing some perspective or more expansion and therefore more growth and maybe more higher commodity prices, which means that for us is could limited the strong dollar effect. In summary, we are not particularly concerned with the foreign change rate, giving us a direct answer for the reasons that the governor has mentioned that we do have free float and change regime. And we appreciate that. And we think that that's the best way to manage the economy. We don't have any kind of targets or bands or whatever. And having said that, I think that what was also clear from his comments that we have international factors and we have domestic factors influencing the foreign exchange rate of the local currency, the real, against the dollar and all the currencies. Then if we take the dollar alone, which is the reserve currency, what we are witnessing in Brazil is that the domestic factors so far are offsetting or in some case, as it was the case in the last months, even prevailing over the international factors. Why? Because of the strengthening of the Brazilian economy as the basic reform, particularly because Brazil is coming out of deep recession and has this year forecast for already a sustainable growth path for the next years as well. In summary, this is our approach about the foreign exchange rate. Thank you. We have a question from the lady here and then from the colleague from Roy as if we can get those two questions together. And we've noticed that in the past. Excuse me, could you state your name and organization for the sake of all? With China Business News. With China Business News. And we have noticed that the British, Brazil central banks are actually among very few central banks who kept cut interest rate hike in the past two years because you've got to fight the high inflation. But we can notice that since this year you cut the interest rate by 75 BP, which is a shock to the market because we expect like 50 basic point. But among the rising prices, for example, global commodities and oil prices, are you still worried about your inflationary pressure or something? Thank you. So interest rates and oil, let's get the question from the lady from Reuters, please. So I should answer afterwards. If you wish, go ahead. Yeah, let me answer this and then we can get to the question. As I mentioned in my introduction, we were fighting the high inflation, securing that we enter a path where we are gonna go to the target. That was something that we managed to achieve. As you know, we always have to keep working on that. It's a continuous job. But the decision to cut interest rates that you mentioned by 75 base point is solidly based on the fact that we anchor expectations and inflation is finally going down. Regarding the surprise you mentioned, it is basically the decision to intensify it was decided by the factors that accumulated the evidence over the last month or so. And they basically appointed us that we could afford not only a 50 base point but we could afford a 75 base point. If inflation is anchored and current inflation is going down and the economy is still yet to recover these calls for intensification of monetary policy. And intensification of monetary policy. The oil prices, today we have price mechanism that will adjust the oil prices but it takes into account not only the oil price but also the exchange rate. So if it happens that when commodity prices go up the exchange rate goes down sometimes they may even cancel each other. So if you are a commodity producer and commodities go up you are less concerned because you are the producer. So that limits a little bit the increase in price. Thank you. Please. My question was similar but when you say intensification of the current situation calls for an intensification of monetary policy could you elaborate on that a little bit because what would you like to see to continue with rate cuts of this magnitude that you have done? We have stated that we have entered a new base which means that the space of 75 basis point is our new base but as you know new base at some point may change and if it changes it changes because of inflation expectations, inflation forecast our own forecast not only on the market and level of activity and the risk factors. External domestic risk factors all of this will be taken into account but we have entered into a new base Thank you. The gentleman with the red tie. Your question please? Yeah, my name is Andrew Barden with Bloomberg News. Mr. Morellez you spoke about how in terms of domestic markets the domestic conditions are prevailing over international conditions and I was wondering if you felt there was still room for Brazilian assets such as the real or the stock exchange to make further appreciations in 2017 or as you kind of carry out your models for the coming year whether you're factoring much more appreciation or what your view is on that? Well, we don't have specific forecasts for asset values. In having said that we do see a continuation of the improvement of the fundamentals in Brazil in the sense that there are still some basic reforms to be approved like the social security reform which is going to be decided by Congress during the next months. We have other reform, labor, et cetera, et cetera. And also we have a very important factor as we mentioned is the recovery of the economy are coming out of the recession and as soon as the level of economic activity shows more and more signals of actual growth, all of that together together with the success of the Central American bringing inflation out to target and all of that. I think that all of that will continue to improve the fundamentals and that's an important part of the asset price and information. But then having said that, that we have international factors we have all kind of specific factors affecting every specific market. Then we talk about the fundamentals we give basis for all that rather than specifically the stock market index or the foreign exchange rate. Thank you. Any more questions from the floor? Yes, if you could get the microphone here to the first row. Thank you. Hello, Senator Fropi from broadcast. Just to check the expectations from Brazil to GBP, will be reviving how long? Yeah, we are going to make our review which is a regular one. In about 10 days time. Two weeks, 10 days, two weeks time. And then we will be analyzing exactly the way the indicators today are suggesting the forecast for the 2017 growth and 2018. Having said that, the important point that we are addressing is the fact that since we had this deep recession, that means that we start growing from a very low basis. And that means that even with a very substantial growth as we forecast comparing for instance, last quarter of 2017 over the last quarter of 2016 we are expecting to have about 2% growth. Quarter, last quarter over last quarter. Evidently if we compare average against average since we are coming beginning from a very low basis the year 2017, this number, the average against average tend to be lower. But we think more important than that is the growth at the margin and the job creation, et cetera, which comes with that and the level of activity, et cetera. Which I think that that's going to be clearly perceived by the average population by the second half of 2020. Thank you. We have a follow up question here in the first row. Both gentlemen, I have a sort of a general question about the state of the world. What is your impression now? I mean there's this feeling especially after yesterday's speech by the Chinese president that there is a sort of a shift in the tectonic plates of the world. The narrative seems to have changed. Here is with the developing world pushing for more globalization whereas in previous years it was the western world telling the developing world we need more globalization. What has changed in your view and what is this going to lead to? Let me start. I think developing economies, emerging markets have benefited in general from globalization which means that we all support the continuation of that. Minister Merales mentioned the middle class and how is the middle class in developing economies have benefited from that. In the case of Brazil, there was quite a bit of increase in the middle class, benefits of the class in the last decades. So that has been quite important and it reflected in the positions that you mentioned of emerging markets and that Minister Merales mentioned at the beginning. We continue to support globalization because it has benefited our economies and our middle class. Minister, you wanna add to that? Yes, absolutely. I think that at the end of the day globalization is beneficial to everyone including the developed economies. I think that as we have pointed out in some of these meetings, if you take the US for instance where this problem is clear, the question of the developed, the problem of the developed countries with globalization. Indeed, you have the chip imports, et cetera, we turn one hand, eliminate some American jobs, but evidently the growth generated by that and the shift in the economy to high technology and all of that and services create all kinds of jobs and the bottom line is the low level of unemployment in the US. In addition to that, you have the whole population taking advantage of lower prices which becomes as a result of more efficiency in the economy. But in having said that, the group of people who think in a country like that or in parts of Europe, they are not receiving the benefits of globalization as it is the case of other segments. That's a problem to be dealt specifically by those governments in terms of creating compensations or safety nets or whatever it's necessary or training, even better training, skill improvement for people to move up in the payment scale. In the case of the emerging markets, definitely globalization has been positive. In the case of Brazil specifically, what we have to do is, as we said, reform the economy to take more advantage of globalization because this was not the case so far because Brazilian growth in the past was very much based only in the domestic market. We have to take advantage as other emerging economies have done and we are moving towards that direction. Thank you very much. We have time for maybe one last question. Yes, can we get the microphone? Thank you. I've got a follow-up question is on a fat interest rate high because we have to see that the EME's capital outflow is not that serious as we expected in the last December and the market now has priced in three or two rate high this year, so how do you comment on the resilience of Brazil against this normalization process? Will you use your forex reserve to prop up your currency if necessary? We've seen the normalization of the conditions in the United States as part of a normal process. The global economy is recovering, the U.S. economy in particular has recovered first. We've seen this process as a normal process. It has been, it seemed to be gradual which is something that is, in my view, a good sign. It is gradual, it's sustainable. It is something that the world should expect because it makes interest in general more normal than they were in the last eight years. So it's at the end, it's not a bad news, it's good news for the world. On your question if we're gonna use reserves or not, we use them, basically we have been intervening using instruments like the swaps that we have issued which are backed by the amount of reserve, we have 20% of GDP reserves so we can use our instance but we use them for to give liquidity to provide moments of stress as we mentioned before, the first line of the phase is the currency, the currency floats and this will continue to be the case. In addition to that, I would like to add that objectively in Brazil, we are witnessing net inflow of capital and actually the forecast for the future as it was clear in other questions is whether this inflow, the net inflow because of the recovery of the economy, because of the foreign investments in the Brazilian economy which is being attractive, very attractive, whether the trend is not in another direction. The bottom line is that as opposed to what's happening with some emerging economies, we are not witnessing a flight of capital which is worrying or propping the Brazil to use reserves to hold the currency. Other, exactly the other around, I mean we are in that regard on a balanced position, our current account balance is well along the lines with the past, the history, et cetera, et cetera. And in having said that, as I mentioned, now we are in a recovery, the economy is beginning to grow and then the trend is for investors to have more opportunities and the conversations we have had here during the last days at the forum, we have gotten indications from several large corporations who have some investment in Brazil and now they are thinking about investing substantially more, exactly for all these reasons. In summary, besides the fact that we do have a free-floating foreign exchange regime approach, as the government elaborated on it, et cetera, we are on a specific situation today which is not one of concern for us. The, just to give the numbers here to complement this, the FDI is running around 4.4% of GDP in Brazil and the current account deficit is around a little bit higher than 1%. So FDI is 4.4, current account deficit is 1.1, so it's a big, one is almost four times the other. Thank you very much. And now it's my turn to add a third number. It is one o'clock and 30 minutes which means we're concluding this press conference here. Thank you very much for watching. Thank you for being here and a special welcome, a special thank you to minister and governor. Thank you very much. Good, thank you.