The paradox of Brazil

By Eduardo Crespo

Brazil has all the conditions to become a regional power able to push the entire region on the path of progress.

Beyond having a large domestic market, there is no reasonable expectation of an external constraint in the near future. Brazil has 380 billion dollars in reserves, its foreign debt is negligible, the impact of the international crisis was irrelevant and it can even borrow in its own currency in international markets. It has large and efficient state organizations such as Petrobras, Embrapa and BNDES. It was particularly favored by the commodity boom and exports increased with the agricultural boom. For the first time in history a tropical country became a major food exporter. And if that weren't enough, large oil reserves were discovered.

And yet, despite all these promising signs, the economic performance of Brazil has been disappointing. In 2011 and 2012 growth rates were 2.4% and 0.8% respectively. The early 2013 data also suggest a poor performance. The Brazilian economy grows less than the world average and has among the lowest rates in South America. What's wrong with Brazil? The explanation is not in the economy. It is in politics. Leaders and business elites have a marked distrust of the social effects of growth. The rise in real wages and the gradual advancement of the popular sectors creates cracks in the traditional mechanisms for social control. The reaction, almost instinctive, imposed by Dilma Rousseff, was to apply the self inflicted stagnation therapy, based on fiscal adjustment, wage stagnation* freezes and pro-business measures such as tax cuts and exchange rate devaluation."

Read the rest (in Spanish) here (h/t Marcia Pressentin for link and translation).

* Note of the editor: Average wages have not grown much, while the minimum wage has increased significantly in the last decade.

PS: One clarification. Objectively the protests in Brazil started with a demand for reduction in the cost of public transportation, which could be seen as a demand for more public spending in transport infrastructure. But that has sort of morphed into something else. The suggestion, not from Eduardo, but from this blogger is that the paradoxical lack of growth in Brazil might have something to do with what is going on.

Comments

  1. I was just in the process of posting this, and you beat me to it. Nice.

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  2. this is franklin serrano : what "wage freezes" is eduardo refering to ?

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    Replies
    1. I think he meant wage stagnation. Will change. Thanks!

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    2. I see no paradox in Brazil's lack of growth. Its private sector is heavily taxed; its finance is heavily disfunctional as credit is allocated based on political relationships and not expected returns; for the last 3 decades its children have been indoctrinated instead of learning useful productive skills; and its approach to commercial policy is protectionist and against integration with the rest of the world. Brazil was very lucky to benefit from the commodity boom which allowed it to have growth of about 2 percent a year (in per capita terms). Without rising (not high) commodity prices an under current management, we should be lucky if we can grow at 1 per cent per year.

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    3. Yes, because Brazil did so poorly with the State-led policies of the 1930s to the 1980s, growing at 7.5%. Dude, get real. Neoliberalism failed. The problem is that the left of center governments in Brazil (and I mean Worker's Party only) have not been sufficiently for ISI policies. Your clueless or worse.

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