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Brazil: Still the Country of the Future


The BRICs have had a rough year, but none has fallen quite so far as Brazil. After a few years in which it seemed poised to set the world on fire, economic growth is now below 1 percent, riots broke out across the country earlier this year, and the optimism of the Lula era is now a faint memory. All of a sudden, Brazil looks like the country it used to be, the one that has been unable to turn its abundant natural resources, and large, growing population into a period of sustained growth.

The Economist examines how the country’s fortunes turned so quickly. While the global economic slowdown is partly to blame, Brazil’s leaders—and especially the economic policies they have advocated—bear most of the blame. In particular, their habit of inflating their way out of  problems and their unwillingness to reform have gotten them into hot water once again:

Compare pensions and infrastructure. The former are absurdly generous. The average Brazilian can look forward to a pension of 70% of final pay at 54. Despite being a young country, Brazil spends as big a share of national income on pensions as southern Europe, where the proportion of old people is three times as big. By contrast, despite the country’s continental dimensions and lousy transport links, its spending on infrastructure is as skimpy as a string bikini. It spends just 1.5% of GDP on infrastructure, compared with a global average of 3.8%, even though its stock of infrastructure is valued at just 16% of GDP, compared with 71% in other big economies. Rotten infrastructure loads unnecessary costs on businesses. In Mato Grosso a soyabean farmer spends 25% of the value of his product getting it to a port; the proportion in Iowa is 9%.

These problems have accumulated over generations. But Ms Rousseff has been unwilling or unable to tackle them, and has created new problems by interfering far more than the pragmatic Lula. She has scared investors away from infrastructure projects and undermined Brazil’s hard-won reputation for macroeconomic rectitude by publicly chivvying the Central Bank chief into slashing interest rates. As a result, rates are now having to rise more than they otherwise might to curb persistent inflation. Rather than admit to missing its fiscal targets, the government has resorted to creative accounting. Gross public debt has climbed to 60-70% of GDP, depending on the definition—and the markets do not trust Ms Rousseff.

We warned earlier that President Dilma Rousseff would have to break with her county’s history to build on the success of her predecessor if she wanted to keep Brazil from falling behind in the way it always seems to. Thus far, she has been anything but a visionary new leader.

As the Economist notes, it’s not too late for her to change course, but from here on out it will be a steeper uphill climb.

[Image of Brazilian flag from Shutterstock] 

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  • Alexander Scipio

    “In particular, their habit of inflating their way out of problems and
    their unwillingness to reform have gotten them into hot water once

    Hmmm… sound familliar?

  • michaelj68

    Despite all that Brazil’s elite decided to blow tens of billions of $ on hosting two parties: Olympics and World Cup.

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