Interview with Romeu Zema Neto – Governor (State of Minas Gerais)

Leaders League. Which key measures have been implemented by your administration to stimulate economic growth in the State of Minas Gerais?

Romeu Zema Neto. Our administration took over a bankrupt state which was not even transferring federal funds to municipalities. No forecast existed to pay public state servants who, for example, did not receive a thirteenth salary in 2018. Hence, our first measure was to provide a degree of predictability and, since February, all mayors in the state have been receiving the constitutional transfer of federal funds. Public servants now know when they will be paid and, additionally, we have agreed to pay out last year’s thirteenth salary in installments. This measure has provided state employees with a financial safety and stability which, until recently, they did not enjoy. Moreover, it has also ensured municipalities have the necessary funds for essential projects. Without funds, for example, the mayor of a small town in Minas Gerais could not financially commit to conducting improvements works at the local school – this has now been partially solved.

Our administration has been aggressively cutting back on the unnecessary expenses which our state has accumulated for decades. For example, the previous governor had a fleet of seven airplanes at his disposal which we have now reduced by over 50%. Another example was the printing of the government bulletin on paper which, by the time it arrived, was already outdated. As such, 127 years after its first edition, we have printed the last version of the ‘Diário Oficial de Minas Gerais’ and switched to a digital version. We are thus fighting against the waste of public funds and although we have reduced expenses, we are still a long way from balancing the state accounts with the deficit currently standing at R$34.5 billion.

Privatizations will be key to balancing state accounts and today are no longer a question of ideology but pure common sense. Today, our state power generation and distribution company, CEMIG, would require an investment of R$21 billion over the next four years of my mandate, however, it can only invest R$6 billion itself, which means a difference of R$15 billion – at the moment, the state which is the largest shareholder is in no position to cover these expenses, or can a bankrupt state inject R$15 billion? So either we privatize CEMIG or it will remain a burden to the citizens of Minas Gerais. In recent years, CEMIG has failed to service an enormous amount of large companies and even individuals due to its lack of coverage which has restricted the state’s economic development. As a result, several companies have decided to establish themselves elsewhere in Brazil. We are currently striving to find solutions, however, this impasse will only definitely be resolved with the company’s privatization and the taking over by an investor who will be able to inject the necessary funds into the company.

We are currently simplifying Minas Gerais’ tax, environmental and sanitary regulations. For example, Minas Gerais had the most complex ICMS (state tax on the movement of goods and services) in Brazil and the most restrictive environmental regulations. Due to sanitary norms, for example, a small cheese producer may sell products to other states but not within the state of origin. As such, our administration is untying these knots which have been inconveniencing the lives of local producers and entrepreneurs. Incredibly, even with so many restrictions and regulations, we were not able to prevent the Brumadinho disaster.

Lastly, the State Secretary for Economic Development, Manoel Vitor de Mendonça Filho, and I have been actively meeting with entrepreneurs to assure them that Minas Gerais will no longer treat investors unfairly, to which we are already seeing positive results. According to the National Register of Employed and Unemployed (CAGED), in the first five months of my administration, Minas Gerais created 75,000 formal jobs placing the state in first place for job creation by per capita ratio. In July, this figure reached 99.946, meaning we have now reached two thirds of our goal of creating 150,000 jobs in Minas Gerais in 2019.

Which measures has the Government of Minas Gerais launched to attract new investors to the state?

Today, Minas Gerais is very competitive with regards to tax incentives which has been attracting a high volume of companies, especially due to the innovative manner in which we are now charging ICMS. For example, our state offers some of the best tax incentives for on-site distribution generation as well as the purchase of solar generation equipment within the state of Minas Gerais. Furthermore, we are returning the credibility which was lacking to the state, especially with regards to the rule of law. For example, our administration has completely changed the handling of illegal land invaders and now operate with a zero-tolerance policy which provides total safety to landowners in the state.

Which measures have been launched for the recovery of the areas affected by the Brumadinho environmental disaster and to avoid future scenarios?

On the 25^th of February, exactly one month after the environmental disaster, our administration sanctioned law 3.676/16 which both forbids the construction of new tailings dams – the same type of dam involved in both the Brumadinho and Mariana disasters - and determines the deactivation and decommissioning of all existing tailings dams by 2021. Over the following years, there will be an enormous shift in the mining sector to remove and adapt these dams.

Our administration is closely monitoring the environmental recovery work being performed by Vale in the Paraopeba basin which was severely contaminated. As of now, the company is focused on removing waste and residue from the river.

As far as compensation, we are experiencing severe difficulties in obtaining the outstanding reparations related to the Mariana disaster, a process which is overseen by Fundação Renova. Reparations have been very slow because a governance model was created with an infinite number of committees and assemblies which makes it very difficult for progress to be made. However, the Governor of Espírito Santo state, Renato Casagrande, and I are currently setting up a task force to speed up the recovery of the Rio Doce basin at both state and municipal levels.

The financial market had high hopes for the first semester of 2019 which did not materialize. What does Brazil need to return to growth in the second semester?

We need reforms. First, we have the pension reform which, when enacted, will indicate to the international market that the Federal Government has its public accounts in order. This reform must include the states and municipalities, otherwise, it will be an insufficient measure. Secondly, Brazil requires a tax reform – with both of these reforms in place, the country would be in a position to grow once again, perhaps even at the rate of 2% to 3% expected at the start of 2019. Additional measures such as a far-ranging privatization agenda could help this rise to 3% or 3.5%. Lastly, the federal government which overall has been very well-intentioned in its proposals, must stop following an unnecessarily controversial agenda as this distracts from what we are all trying to achieve which is growing the economy once again.

By: François Le Grand