VIII. Structural Reforms and Investment Prospects

The Brazilian government's limited investment capacity, combined with legislation that defined several activities as state monopolies, meant that the infrastructure for transportation, energy, communications, ports, storage and other areas has been deteriorating over the last 20 years. The defeat of inflation, combined with the passage of constitutional reforms terminating many public monopolies and ending market reservation for national companies, will permit private capital to invest in such infrastructure areas as telecommunications, the generation and distribution of electricity, cabotage shipping and piped gas.

The principal constitutional amendments already approv-ed or sent to Congress will, moreover, help to promote exports by reducing the "Brazil Cost." Among the various positive points in the propose tax reform recently sent to the Congress are:

• the proposal to stimulate investment by permitting companies to deduct from their tax liabilities those taxes paid in the purchase of capital goods;

• the exemption of primary and semi-manufactured goods exports from the sales tax (only manufactured products are currently exempt);

• the exemption of agricultural inputs and machinery from the sales tax in order to stimulate investments in agriculture and agro-industry;

• repression of tax evasion, which is facilitated by the existence of different rates among and within the states; and

• termination of the "fiscal war" between the states.