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THE NEW BRAZIL: ACHIEVEMENTS AND CHALLENGES
Edmar BachaBrazil Seminar. Columbia University
September 10th, 2014
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BRAZIL’S ACHIEVEMENTS SINCE MID 1990s
• 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
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Yearly
Cumulative
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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
• 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)
• Brazil: 7th largest economy in the world, but only the 22nd largest exporter
• Brazil’s GDP, 3.3% of world. Brazil’s exports, 1.3% of world.
• Ratio imports/GDP Brazil: 13%– Lowest value among the 176
countries considered by the World Bank.
• Paradox: Brazil the 4th most preferred destination for foreign direct investment
• Open capital account, closed current account: recipe for impoverishing growth
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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
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Result is less competitiveness and lower productivity
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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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ALTERNATIVE INDUSTRIAL POLICY: INTEGRATION TO INTERNATIONAL PRODUCTIVE CHAINS
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Three Pillars
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CONCLUSIONS
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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
• S3: Miriam Leitão, Saga Brasileira: A Longa Luta de um Povo por sua Moeda. Record, 2011: 260-261.
• 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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