THE NEW BRAZIL:
ACHIEVEMENTS AND CHALLENGES
Edmar Bacha
Brazil Seminar. Columbia University
September 10th, 2014
BRAZIL’S ACHIEVEMENTS SINCE
MID 1990s
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Inflation stabilization
Income gains of poor families
Declining unemployment rates
Lower real interest rates
From external debtor to external creditor
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INFLATION BEFORE AND AFTER
THE REAL PLAN, 1979-94 AND 1994-2009
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INCOME DISTRIBUTION IMPROVED AFTER
STABILIZATION, 1995-2012
Cumulative
Yearly
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UNEMPLOYMENT IS THE LOWEST IN THE
SERIES, 2002-2014
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REAL INTEREST RATES ARE LOWER THAN
IN THE PAST, 1996-2014
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BRAZIL: A NET CREDITOR TO ABROAD
(GROSS AND NET EXTERNAL DEBT AS A RATIO TO EXPORTS, 1970-2014)
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STRUCTURAL CHALLENGES
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Low growth syndrome
Unfavorable growth-inflation mix
Too high prices
Heavy tax burden
Very expensive social security
Low investment rate
Insufficient infrastructure
Poor education
Closed economy
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LOW GDP GROWTH RATES
SINCE THE EARLY 1980s
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INFLATION-GROWTH MIX IS UNFAVORABLE
(2011-14*)
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THE MOST EXPENSIVE COUNTRY AMONG THE BRICS
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TAX BURDEN IS HEAVY
(OECD AND EMERGING MARKETS, 2013)
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SOCIAL SECURITY IS A BIG PROBLEM
(OECD data for 2005)
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INVESTMENT RATE IS LOW
AND BNDES OFFERS LITTLE HELP
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INFRASTRUCTURE LAGS
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EDUCATIONAL LEVELS ARE POOR
(PISA 2012 RANKINGS & GRADES, SELECTED COUNTRIES)
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ONE OF THE MOST CLOSED COUNTRIES IN
THE WORLD
• Big economies, big
exporters:
– US (1/2), China (2/1), Japan
(3/5), Germany (4/3), France
(5/6), UK (6/4)
• Ratio imports/GDP Brazil:
13%
– Lowest value among the 176
countries considered by the
World Bank.
• Brazil: 7th largest economy
in the world, but only the
22nd largest exporter
• Paradox: Brazil the 4th most
preferred destination for
foreign direct investment
• Brazil’s GDP, 3.3% of world.
Brazil’s exports, 1.3% of
world.
• Open capital account,
closed current account:
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recipe for impoverishing
growth
CURRENT INDUSTRIAL POLICY:
MORE PROTECTIONISM
• Response to deindustrialization and external
deficits:
– Discriminatory manipulation of taxes and import tariffs
– Overambitious local content policy
– Indiscriminate Buy Brazilian act with 25% preference
margin
– Inadequate ‘national champions’ policy by BNDES
Result is less competitiveness and lower productivity
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ALTERNATIVE INDUSTRIAL POLICY:
INTEGRATION TO INTERNATIONAL PRODUCTIVE CHAINS
Three Pillars
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• Reduction of ‘Brazil cost’ (tax,
bureaucracy, logistics)
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• International trade agreements
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• Replacing high tariffs by a more
devalued exchange rate
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CONCLUSIONS
Brazil has come a long a way since the mid-1990s
But it needs more savings and investment, better education, and a reduction in the
“Brazil cost” of doing business
Opening up to the world would work as a catalyst for the adoption of the reforms
that Brazil needs to raise its GDP growth rates
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THANK YOU
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SOURCES FOR THE SLIDES
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S3: Miriam Leitão, Saga Brasileira: A Longa Luta de um Povo por sua Moeda. Record, 2011: 260261.
S4: Secretaria de Assuntos Estratégicos (SAE).
S5-S7: MacroEconomic Research Banco Itaú BBA.
S9: Edmar Bacha and Regis Bonelli, “Accounting for the rise and fall of Brazil’s Post-WW-II GDP
growth”, July 2012. Available at: www.iepecdg.com.br. Updated in July 2014 by Regis Bonelli.
S10: The Economist.
S11: IMF apud José Roberto Afonso and Kleber Castro.
S12: Paulo Tafner and Fabio Giambiagi, “Previdência social: uma agenda de reformas”. PPT.
October 2010.
S13: Armando Castelar, ”Desempenho Recente e Perspectivas de Crescimento da Economia
Brasileira”. Presentation to the Seminar: Whither Latin America? Rio de Janeiro: Vargas
Foundation, August 9-10, 2012. Updated in July 2014 by Luísa de Azevedo Senra Soares.
S14: World Economic Forum, apud Financial Times.
S15: OECD, PISA.
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