COUNCIL FOR ECONOMIC AND SOCIAL
DEVELOPMENT
European Economic and Social Committee
BRAZIL-EU ROUND TABLE
REX/283
Social consequences of the economic crisis
Brussels, 23 June 2009
FIRST BRAZIL-EUROPEAN UNION CIVIL SOCIETY ROUND TABLE
Brussels, 7 and 8 July 2009
REPORT
SOCIAL IMPACTS OF THE INTERNATIONAL ECONOMIC CRISIS AND THE CHALLENGES
OF DEVELOPMENT: THE ROLE OF THE STATE AND CIVIL SOCIETY
Report drawn up by the Council for Economic and Social Development (CDES)
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EN
-1Putting the international economic crisis in context
There is agreement that the epicentre of the economic and financial crisis that struck in the first half of
2008 lay in the United States of America, and that it has now spread to all regions, highlighting the
links between economies in a globalised world. There is also agreement that this is the greatest crisis
faced by capitalism since 1929, with no clear view of when and how a new cycle of growth will start.
The main causes of the crisis go back to the process of deregulation of the international financial
system, starting with the ascent of a neoliberal hegemony in the 1980s that was responsible for the
gradual weakening of the welfare state and social rights, and for growing insecurity of employment in
the core countries and in most developing countries.
The accumulation of fictitious capital, relying on fiscal deficits, consumption based on the rapid
growth of credit and the resulting household indebtedness, financial innovations and the upward surge
in asset prices, along with other factors, imposed an unsustainable profitability dynamic. Intensive
mobility of capital, in the form of direct investment, towards lower-cost regions (pay, tax, credit and
infrastructure) was paralleled by flows of financial resources towards deregulated markets offering
high yields.
The chain-reaction breakdown of the pillars holding up this process has led to a sharp economic
contraction, bringing unemployment and insecurity in its wake for the most vulnerable sectors of
society. In other words, workers, small producers, poor and development countries – who played no
part in creating it – are paying the highest price for this disaster.
As a result of the crisis, the debate on the role of the state as a regulator and promoter of development
has been reopened. A path towards a new world geopolitics, bringing all countries into the debate and
the global decision-making process, is also opening up.

Effects of the crisis in Brazil
The international crisis finds Brazil in a healthy macroeconomic situation: inflation under control,
accumulated international reserves of more than USD 204 billion and a robust banking system, rising
industrial production and exports, harvests at an all-time high (145.8 million tonnes of grain), and an
investment rate (GFCF1/GDP) around 19% of Gross Domestic Product (GDP). For the first time,
Brazil had become an external creditor.
The picture on the internal market was also encouraging in 2008. Household consumption had risen
by 5.4% compared to the previous year – the fifth consecutive year of growth. At the same time, 13.3
million jobs were created and the credit market was expanding uninterruptedly.
1
Gross Fixed Capital Formation.
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-2The sudden fall in exports, triggered by the world economic slow-down and the falling prices of
commodities exported by Brazil, led to reduced trade surpluses which, combined with movements of
profits out of the country, generated current account deficits. Coming on top of these impacts, the
liquidity squeeze and the sudden loss of confidence arising from the deep-rooted uncertainty
spreading throughout the world economy, led to a shortage of credit affecting the production sector
and consumers. The prevalence of high interest rates and bank spreads was reflected in the
postponement and cancellation of investment projects and a striking reduction in the production and
consumption of durable goods. As a result, the Brazilian economy shrank by 3.6% in the last quarter
of 2008. Unemployment stood at more than 300 000 in December, in addition to the normal end-ofyear seasonal unemployment.
However, in comparison with other countries, Brazil has suffered less and has brighter prospects for
recovery. Discussions conducted by the Council for Economic and Social Development have pointed
to four elements in this scenario that favour development and boost the economy by stimulating
aggregate demand:
1.
Infrastructure investment, especially the Growth Acceleration Programme (PAC). The PAC
restores public coordination of investment and seeks to provide energy, transport, urban development
and sanitation infrastructure, and to correct regional structural inequalities. The projects amount to
more than BRL 1 trillion2 of – public and private – investment planned up to 2015. At the peak of the
crisis, investment was increased by BRL 142 billion, boosting economic activity both directly,
through project implementation, and indirectly, by stimulating input industries. Much more needs to
be done for the country to be equipped with infrastructure commensurate with the sustainable growth
it wants. The CDES recommends that public investment be expanded, giving priority to investment
aimed at integrating geographical regions on an equal footing and at ensuring environmental
sustainability.
2.
Public financing system able to act as a lever for development policy. The Bank of Brazil
(BB), the Federal Economic Fund (Caixa) and the National Economic and Social Development Bank
(BNDES) are responsible for funding major projects, expanding credit and directly boosting the
private sector. At a time of crisis, they arrange counterbalances to the international credit squeeze, and
provide working capital and investment, in exchange for guarantees of employment and
environmental protection. The BNDES, with BRL 168 billion available, is today one of the main
engines for economic mobilisation and for upholding industrial policy.
Changes to interest and intermediation spreads policy are needed within the financial system, as is the
removal of barriers hampering access to credit for small and micro enterprises. For the CDES,
monetary and fiscal policies must be adjusted in line with the extraordinary situation caused by the
international financial crisis, and state action must on occasions be prompt if it is to be effective.
2
Conversion as of 15/06: USD 1.00 = BRL 1.94; EUR 1.00 = BRL 2.69.
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-33.
The existence of strong public enterprises, such as Petrobras which as well as providing selfsufficiency in oil, is holding orders that can give impetus to sectors right across the Brazilian
economy. The company's planned investments for the 2009-2013 period amount to some USD 174.4
billion in Brazil and elsewhere.
4.
The social protection system is made up of a raft of social policies and income transfer
programmes which has been strengthened and extended over the last six years, making the country
stronger by expanding the internal market and successfully reducing inequalities.
The Brazilian approach to coping with the crisis has been to reinforce the economy from its
foundations, extending credit and lowering taxes to encourage productive investment, and boosting
the internal market. Overall, income distribution, productive credit and creation of infrastructure are a
clear response to the country's priority needs and, at the same time, are reducing its vulnerability to
the crisis.
Research carried out by the Applied Economics Research Institute (IPEA) reveals that some 316 000
people, with monthly incomes of half the minimum wage or less, escaped from poverty in six state
capitals in Brazil during the first six months of the financial crisis.
The most recent data suggests a turn-round in the economic situation. Since February 2009, Brazil has
started to register modest increases in the number of jobs created in the official economy, with a
positive balance of 48 454 jobs up to April, and a trade surplus of USD 11.307 billion. GDP in the
first quarter of 2009 fell by 0.8% compared to the first quarter of 2008 – a relatively positive result
compared to most other countries.
The CDES has always been governed by the need to envisage Brazilian development in political
terms. It sees development as collective construction, entailing progress in social indicators and the
creation of decent jobs.
Civil society has a key role to play in implementing this development project fairly, based on
productive activity, work and solidarity.
Brazil is setting up and strengthening a wide-ranging participatory network, consisting of several
levels. For example, 50 national conferences have been held in the last five years, bringing together
some 3.5 million delegates from municipal, state and national bodies3. At the national conference
level alone, nearly 5 000 public decisions were taken, many of them feeding into the design of public
sectoral policies.
3
Information from the secretariat-general of the Presidency of the Republic, 2008.
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-4
The Brazilian social protection system and the global crisis
The broad definition of development means that the economy must recover in order to perform its
social function. Sustainable development with social inclusion requires a social protection system
capable of creating freedoms/opportunities even at times of slowdown in the economic cycle.
In Brazil, the social protection network covers the following areas of state activity: employment and
income policies, education, health, social insurance, culture, defence of human rights (aim of social,
racial and gender equality, defence of children's and adolescents' rights, of the elderly, women, sexual
identity, justice and citizenship), public safety, housing and sanitation, agricultural development,
social welfare services and income transfer.
In the light of the focus on this meeting of the round table, a number of brief comments should be
made on certain programmes and the scale of resources involved.
A) Policy of raising the minimum wage and earned income
The minimum wage is used not only as a minimum level but also as an indicator for earnings in the
official economy. Taking the period from the beginning of Lula's government (January 2003), a real
increase of 44.95% has been achieved4.
The February 2009 adjustment of the minimum wage entails, according to calculations by the InterUnion Department of Statistics and Socioeconomic Studies (DIEESE), injecting BRL 27.8 billion into
the economy in the course of the year, and should benefit some 43.4 million people, including
employed and self-employed workers, domestic workers and employers whose income is linked to the
minimum wage. Moreover, the increase in the minimum wage and the impact on economic activity
should boost tax income by some BRL 6.8 billion – significantly offsetting the serious drop in tax
income caused by the crisis.
The fact that these resources injected into the economy are of a permanent nature tends to strengthen
the view that a stronger internal market – thanks to the scale of consumption – is a strategic factor in
maintaining economic growth.
4
This trend in the minimum wage was possible thanks to the coordinated mobilisation of the country's trade union federations
who, in 2004, succeeded in bringing about the creation of a Quadripartite Commission – government, workers, employers and
the retired. This Commission has drawn up a proposal for a permanent policy to upgrade the minimum wage, combining
restoration of its value as a result of the inflation occurring between two correction points with variations in GDP for the two
preceding years.
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-5B) General Social Insurance Scheme (RGPS) and Continuing Benefits (BPC)
Raising the minimum wage has a greater impact on the mass of income at the bottom of the pay
pyramid, by guaranteeing purchasing power with real increases in social benefits from the General
Social Insurance Scheme (RGPS) – the base level of which is constitutionally tied to the minimum
wage – and the continuing benefits system (BPC/LOAS), paid to poor households with elderly
members not receiving other benefits or members with disabilities. Impressive numbers are reached
thanks to the coverage of these policies in Brazil.
Nearly 18.3% of non-working Brazilians in urban and rural areas throughout the country; 14.9 million
beneficiaries of social insurance and some 3.4 million poor households have been helped by the rise in
the minimum wage. Taken together, the BPC and RGPS injected in the order of BLR 845.9 million in
the first month alone of the new minimum wage coming into force.
C) Household Grant Programme
In tandem with the impact of the increase in the minimum wage, the Household Grant Programme
(PBF) is another public policy that, at this moment of crisis, is working rapidly and effectively to
offset cyclical trends.
The PBF is the largest direct income transfer initiative in the world today. It met its initial goal of 11.2
million households at the end of 2006, and hopes to extend benefits to more than 1.3 additional
households in the course of 2009.
The programmes work in three ways: 1) immediate poverty relief by direct income transfers to
households; 2) strengthening of basic social rights in the areas of health and education, helping to
break the poverty cycle between generations; 3) coordination of supplementary programmes such as
job and income creation schemes, adult literacy campaigns, etc.
As well as being necessary for its own sake – combating poverty and inequality – the immediate
inclusion of this huge number of people is also a means for countering the economic crisis, mitigating
the lack of aggregate demand in both the less dynamic rural regions and in the outlying areas of major
cities.
D) Unemployment Insurance
Unemployment insurance operates as an automatic stabilisation mechanism, in that expenditure tends
to increase as redundancies grow. It is therefore a rapid reaction to a reduction in the total payroll
stemming from a fallback in economic activity.
In Brazil, unemployed workers are entitled to a minimum of three and a maximum of five
unemployment insurance packages. The level of payments is progressive, being close to 50% of the
highest salaries but reaching 100% for redundant workers earning the minimum wage. Unemployment
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-6insurance replaces a part of the worker's earnings for a short period, which is suitable for job-seeking
against a backdrop of growth, but is inadequate for long term unemployment.
Redundancies due to the economic crisis are expected to increase expenditure on unemployment
insurance. However, the current ceiling on spending under this programme is BLR 1.1 billion,
representing something like 0.04% of GDP and benefiting approximately 7 million people.
E) Single Health System
Universal and full access, the principles underpinning the Single Health System (SUS), have sustained
the progress of this universal social policy. The SUS plays an irreplaceable role in health and
epidemiological monitoring, promoting health and preventing and controlling disease.
The comprehensively structured nature of the system via the Family Health Programme (PSF),
providing census-based cover for more than 100 million people, indicates the outstanding opportunity
for socially-rooted and strongly social proactive actions to reach throughout the population.
As a sphere of economic activity, the SUS directly and indirectly creates job opportunities in the
formal economy and fosters industrial production and service activity, among other effects helping to
surmount the crisis. According to the IBGE (Brazilian Geographical and Statistical Institute), some
850 000 jobs are created directly in public health establishments.
F) "My Home, My Life" Programme
Having identified housing as a link in the social protection network, the programme is enabling a
million housing units to be built for households earning up to ten times the minimum wage
(BLR 4 650), in partnership with the states, local authorities and private enterprise, injecting an
additional amount of BLR 34 billion, which will boost the economy, create jobs and have a beneficial
impact on society as a whole by allowing millions of Brazilians to have their own home.
G) National Family Farm Reinforcement Programme (Pronaf)
Pronaf is intended to provide financial support for farms run directly by individual farmers and their
families. Family farms make up the vast majority of farms in Brazil. This segment holds 30% of land
and accounts for 38% of overall production. It provides 60% of the range of products making up the
Brazilian diet. These farmers generally have a low level of education, and diversify their crops in
order to dilute costs, boost yields and take advantage of what the environment offers and the
availability of labour.
In the 2008/2009 period, BLR 12 billion was allotted to the various credit lines for costing,
investment and marketing, with some 2.2 million families gaining access to it. For 2009/2010, a sum
of the order of BLR 15 billion is expected to be earmarked for family farming through the Safra Plan.
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-7H) Education
Seeking to make high-quality education available to all is a major challenge that Brazil is taking up, in
order to confront poverty and inequality, and give impetus to social and economic development.
The public education network has made progress in Brazil in recent decades, as part of an effort to
extend access to all levels and types of education, to promote enhanced teaching quality and to banish
illiteracy, which is still a significant factor in the country.
These efforts have resulted in improved educational indicators, and the Brazilian education system is
becoming a major source of direct and indirect employment, created through public expenditure on
school meals, text books and other equipment and inputs.
Challenges for the debate and recommendations
This context of crisis offers an opportunity to put the debate on development models back on the
policy agenda in different countries, since its economic, social and environmental elements are
inseparable. Civil society participation is to be encouraged as part of our shared responsibility for the
future.
The debate we are proposing focuses on a programme that can promote worldwide development,
responding to the economic crisis while identifying solutions for serious social and environmental
problems. As far as the CDES is concerned, such a debate can only be brought about by a dialogue
bringing together government, employers, workers and other social actors.
The CDES therefore points to the following challenges, as a focus for discussion and proposals for
recommendations:





The central state's capacity for investment and mobilisation of private investment, geared to an
economy based on environmental sustainability and on working energetically and continuously to
reduce inequality;
Protection of the real economy, ensuring that resources are channelled directly to those who can
convert them into demand, production and jobs;
Dissemination of mechanisms to strengthen social policies in order, for example, to create
security for individuals and households, combined with more broad-reaching policies to uphold
production, consumption and, in consequence, economic flows;
Construction of a new global economic architecture, as the standard solutions, such as those
proposed in the last decade by the multilateral institutions, have been shown to be inadequate and
out of date. There is a need to devise new institutions and new processes expanding the
involvement of the various countries in response to the funding requirements of developing
countries;
Contribution to a global governance approach of coordinated steps to deal with the crisis by
introducing collaborative processes, a long-term vision, planning and systemic measures. The
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-8-

generation of a protection chain of events must be avoided, and the consequences of the crisis
must not be borne by the most vulnerable links: workers, small producers, immigrants and the
poorer countries and regions;
Bigger and better forums for participation and instruments for social control. Pursuit of a real
ability to resolve problems through understanding and agreement between social and
governmental actors, in order to ensure a new cycle of investment and growth, accompanied by
fairness, environmental responsibility, job creation and wealth distribution in a democratic and
solidarity-based international framework.
What we are witnessing is the convergence of a number of crises. These include the financial crisis, a
crisis within the model of asymmetric globalisation, an environmental crisis and a crisis of perception.
The present crisis is deeper than, and different from, its predecessors, but few people have changed
their way of thinking or their responses to the questions now at the global centre stage.
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