Don’t look now, but the Leftist government Brazil may be considering taking a big step to the right. Angry protestors clogged the streets decrying the ineptness of Ms. Rousseff’s government last June, and the country’s economy today continues to stagnate. But now economic policy might shift, as Tim Ridout’s intelligent piece for the GMF Blog illuminates:
After a spate of economic growth that peaked in 2010 at 7.5 percent, Brazil’s economy slowed to 2.7 percent in 2011 and 1 percent in 2012. The growth rate for 2013 is expected to be about 2.5 percent. These disappointing numbers can be attributed partly to the drop in global commodity prices, but also to Brazil’s protectionist policies, poor infrastructure, unwieldy bureaucratic red tape, and its statist approach to investment. The Brazilian economy has not proven nimble enough to adjust to changing global realities, especially as investment flows back to the United States. Rousseff may have had little choice but to reassure business leaders at Davos that Brazil is committed to fiscal responsibility, openness to investment, combating inflation, and maintaining a floating currency. […]Mired in an increasingly dysfunctional Mercosur trade bloc, and concerned about being left out of global value chains, powerful Brazilian interests are making their voices heard.
With Brazil’s current economic model, which remains largely under state supervision, real growth will be hard to come by. Brazilian big business had always assumed their domestic markets were big enough to allow for significant protectionism. But it is now becoming increasingly apparent that more trade is needed, and some private sector big wigs and prominent academics are calling for the country to liberalize its markets. Custo Brasil, an old nickname for the country’s less-than-ideal business environment, is finally facing calls for reform from Brazil’s middle-class, who have been emboldened from years of economic growth. The government can hardly continue to ignore them.With Venezuela reeling from unrest and fiscal failure, and Argentina courting economic disaster, a Brazilian change of course would be a dire blow to the Latin left. President Rousseff had hoped to lead the country in Lula’s leftist wake, but as she prepares for re-election, economic and social realities seem to be dragging her in the opposite direction.