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INTERVIEW-Brazil recovery speeding up, gov't eyes growth targets

Alonso Soto and Luciana Otoni
Monday, 5 Nov 2012 | 3:30 PM ET

* Pimentel says growth will speed up to 4 pct plus in 2013

* Rousseff gov't considering long-term growth targets

* Technology key to new industrial model Brazil seeking

BRASILIA, Nov 5 (Reuters) - The world's sixth-largest economy is in good shape and the base has been laid to return to 4 percent growth and more next year.

Just be patient. We will deliver.

That's the Brazilian government's message to investors, despite a persistent global slowdown and a shaky economic recovery at home that has stoked doubts about Brazil's ability to return to the lofty growth rates of the past decade.

Trade and Industry Minister Fernando Pimentel told Reuters that Brazil has paved the way for a sustainable burst of economic growth with record-low interest rates and a competitive exchange rate.

``We will grow and growth will be sustained,'' Pimentel, one of President Dilma Rousseff's closest aides, said in an interview in his office in Brasilia. ``But let's be patient.''

Pimentel's confidence contrasts sharply with the view of some economists who worry that Brazil could be condemned to a long run of mediocre growth, held back by steep taxes, poor infrastructure and notoriously high business costs.

Conditions are so ripe for a take-off that Rousseff's cabinet is considering setting ``ambitious'' long-term economic growth targets similar to the five-year development plans of fellow BRIC nation China, Pimentel said.

Since Rousseff took office nearly two years ago, Brazil has undergone a severe slowdown and is lagging behind other major emerging economic powers such as China, Russia and India.

``Brazil is mature enough to start planning for the long term,'' Pimentel said. Five- to 10-year growth plans will help investors by ensuring a predictable policy and legal framework, he added.

Adopting growth targets would amount to a shift in Brazilian economic policy, which for more than a decade has been based on three pillars: inflation targeting, fiscal discipline and a free floating currency.

STIMULUS KICKING IN

After a year of almost non-stop stimulus by the Rousseff administration through tax breaks, lower interest rates and abundant credit, the Brazilian economy is finally showings signs of picking up from near stagnation.

Brazilian industrial output remains on rocky ground, contracting 1 percent in September after three months of expansion. However, Pimentel is confident that Brazil's economy will grow between 1.5 percent and 1.8 percent this year, before speeding up to at least 4 percent in 2013.

That growth rate, says Pimentel, is a major achievement considering a grim global scenario, whereas developed nations such as Spain and Portugal are in trouble.

By comparison with such European countries, Brazil is able to report healthy macroeconomic indicators, including unemployment near record lows, inflation under control, a trade surplus, a primary fiscal surplus and a falling debt-to-GDP ratio.

Rousseff has also begun to tackle one of the main challenges facing the Brazilian economy: the sky-high cost of doing business here. Her government has opened up concessions of public airports, roads and railways to private capital in a bid to improve the country's faulty infrastructure.

Pimentel said the government plans to auction seaport concessions and new airport concessions by the end of the year.

To protect local industry, the Rousseff administration plans to raise import tariffs next year on an additional 100 manufactured goods, Pimentel said, without providing specifics.

Brazil will not let its currency strengthen to more than 2 reais to the U.S. dollar to support Brazilian exporters, he said, blaming ultra-low interest rates in Western economies for artificially strengthening emerging currencies such as the Brazilian real.

``The government will try to protect the real from the hard impact of the expansionist dollar policy,'' he said.

NEW BUSINESS MODEL

Pimentel, who visits Tokyo this week to seek new investment, said Rousseff's government is seeking to move Brazilian industry into the 21st Century by encouraging technological innovation through foreign partnerships.

Holding up his iPhone as an example of the changing business model worldwide, Pimentel said all the telephone's components were made in China, and are now being assembled in Brazil, with the only U.S. input being Apple's design and software.

``President Dilma is changing the industrial model of Brazil for good'' to raise productivity, the minister said. To do this, Brazil needs to absorb more and more technological innovation.

``We want our industry to advance into the 21st Century. We cannot just have assembly plants for finished products made of imported components, or large warehouses filled with cheap Asian products,'' Pimentel said.

While China is Brazil's largest trading partner today, and has built car and truck factories in Brazil, Pimentel said Brazil is looking to countries like Japan for technology that it needs. ``We already know how to make cars and trucks.''

Investment will keep pouring into Brazil because of its large consumer market of nearly 200 million people, he said.

``The whole world covets the Brazilian market. They all want to be here. It's pure gold.''

(Additional reporting and writing by Anthony Boadle; Editing by Theodore d'Afflisio)