Brazil facts of the day

by on May 15, 2008 at 3:11 pm in Current Affairs | Permalink

1. Brazil has become a net creditor nation for the first time in its history.

2. About 15% of the Congress is under formal investigation for crimes, ranging from attempted homicide to money laundering.

3. Since 2005 more than 20 million people have entered "the middle class," defined as a monthly income of $635.  The percentage of middle-class Brazilians has grown from 34% to 46%.

Those facts are all from "Brazil Joins Front Rank of New Economic Powers," in Tuesday’s Wall Street Journal.

Jody May 15, 2008 at 4:13 pm

Wow! Is it still a great place to vacation, I wonder?

mcwop May 15, 2008 at 4:35 pm

And I practice Brazilian Jiu Jitsu 3 days a week. Becoming quite popular in the states.

Ricardo Amaral May 15, 2008 at 5:10 pm

Not to mention most of the Ministers are involved in corruption, scandals or political dossiers.
The article also fail to acknowledge Plano Real as the period when everybody got richer. Now, the “real middle class” (the one earning from 600 to 1000 reais) has actually decreased during Lula’s reign. Meaning: we are in the process of becoming a remediated dumbed-down middle class. Riches are doing very fine, by the way: rentability has reached record highs for banks in Brazil.

Lucas Novaes May 15, 2008 at 6:06 pm

Spencer,

I don’t have hard data on the issue, but anedoctal evidence seems to indicate that the migration to US curbed.

There’s one city (Governador Valadares – MG), where 25% of it’s population lives in the US. The city ‘s economy is based on travel agencies that provide support to get visas, accomodation in the US, informal jobs, and so on. Last year most of these agencies closed doors.

NPTO May 15, 2008 at 7:54 pm

OK, most Brazilians who can read and write English and have enough of a formal education to read Marginal Revolution are in the top income quartile (as I am), who did not do so great in the last few years (unless you are a banker in the top percentile, or something like that),so I guess there’s got to be a big show of skeptcisim about Lula’s results. The story is a little more complicated.

Sure, there is a commodity boom, but the Central Bank’s inflation target policy produced such high interest rates that we missed most of the commodity party (Lula was severely critiscized for that). The story of Brazil’s recent success goes more or less like this:

The Real Plan of 1994 (Cardoso’s presidency) lowered inflation in a quite spectacular way. Nevertheless, in order to get re-elected (Cardoso changed the law to make that possible), Cardoso kept an overvalued currency for much longer than the plan’s original proponent (Persio Arida)thought was wise. Interest rates in Brazil became insanely high, international reserves collapsed, but Cardoso managed to win the election arguing that if his rival, Lula, were elected, he would devalue the Real. Which, of course, Cardoso himself did two months after the election.

That was the point when most people became disappointed with Cardoso, but, actually, that was when he really started to run the country properly. He chose a extraordinarily clever Central Banker who used to work for Soros, Arminio Fraga, who put in place the present inflation-target system, very successfully. The second Cardoso government introduced what was probably the best law Brazil ever passed, the Fiscal Responsability Law, which placed limits on public spending for federal and, of crucial importance, local governments.

Still, those things were much less sexy than an overvalued currency that made possible for the higher-middle classes to go shopping in Miami. In the following election, Lula won handsomely.

There were many worries about the presidency of a socialist steelworker, but that was the point when the country had an extraordinarily rare strike of luck. Lula chose as his finance minister Antonio Palocci, a former trotskyst without any economic training (he’s a doctor), who had previously converted to responsible management when he was elected mayor of a middle-sized city. Palocci raised the primary surplus of the federal government, and pursued an even more orthodox economic policy than the Cardoso team did. He also bought all our dollar-denominated debt, and planned to introduce many crucial microeconomic reforms, when he was fired after a very strange episode in which the bank accounts of a former employee who accused him of corruption were violated. His responsability in the whole affair remains unclear to this day.

The main problem for Brazil is that the political system is in deadlock in a time when many market reforms still need to be introduced. Lula suffered under corruption scandals in 2005-6, but still managed to be elected due to his economic successes (which also included an enormous program of conditional income transfers that reduced poverty significantly). Both Lula and the opposition would support the reforms, but the all-out war that started in 2005 means that nothing of any relevance is done in Congress these days. That may very well cause the present opportunity to be missed.

An interesting aspect of this whole process that may be of interest to the American Economic community: during the transitional talks between Cardoso and Lula, Arminio Fraga gave Antonio Palocci a copy of a document (“A Agenda Perdida”, the lost agenda)written by Princeton economist José Alexandre Sheinkman (who happpens to be Brazilian). Palocci was greatly impressed by the reform agenda spelled out there, and, according to his autobiography, that proved crucial in both his economic decisions and his decision to surround himself with some very clever young pro-market economists who had been developing Sheinkman’s work for a while. So much for people who think academic economists have no influence.

Well, I don’t know if Brazil is going to become an economic superpower, but you all have to grant us this: we have the most fiscally responsible trotskysts in the whole world.

brainwarped May 16, 2008 at 1:13 am

Does that mean the world bank finally did something right?? But if they are a creditor nation, why on April 8, did they get a loan from the World Bank to build a road? http://extfeeds.worldbank.org/extfeedbuilder/feed/br_all_full_rss.xml I think this disagrees with my definition of “creditor”. If they export more than they import, they are creditors, so $95 million in could be balanced out by their exports. This still makes you think, why are the world bank loans cheaper and easier to obtain than public financing in a creditor nation?

NPTO May 16, 2008 at 10:16 am

Igor, even though we should be careful with those things, I’ll grant that Palocci may very well be guilty of violating the banking records. But his economic management remains nearly blameless (anyway, I am not saying we should vote for him, I’m saying we should manage things like he did). By the way, Suplicy has never been either trotskist or fiscally responsible :)

And I disagree with the “globalization gave us a hand” diagnosis (as I said before, and the opposition claimed tirelessly in the last years, we missed most of the party . A big share of current improvements have been due to the internal market, many sectors that are growing very fast, like building, have little to do with commodity prices. The formidable expansion of sectors that sell to the poor have more to do with the increase of real wages and social transfer programs.

Globalization (I take you mean high commodity international prices) gave a much higher boost to other countries in the region, who were, as a rule, less economically responsible. Brazil’s expectation is that it will now lose comparatively less with the international downturn.

Of course, I totally agree with the idea that many things must still be reformed. The recently proposed labour and fiscal reforms are crucial steps in the right direction, but I doubt they will have an easy time in Congress. Which is especially annoying, since most of these measures are in total accordance with the generally pro-market Cardoso program.

Still, I do think that we should credit both Fraga and Palocci for the current situation, it was very lucky to have a couple of fiscally responsible economic teams in a row. And we should thank Cardoso and Lula for letting them do their jobs.

Igor May 16, 2008 at 11:13 am

If you said that the greatest virtue of Cardoso was to let Fraga do his job, I am with you. I also think that one of Lula’s greatest virtue is to copy Cardoso’s macroeconomic model. Economically, both presidents are OK. Politically, Palloci and his party (the President’s party) still contribute to undermine our democracy. In some sense, most of the politicians do/did the same, but they are not the government. So I focus on PT (our Labor Party). I understand you are not reinforcing PT’s corruption, but trying to balance pros and cons properly. Anyway, I think that Palloci’s crimes are inexcusables, doesn’t matter if he runned the Treasury Department competently.

And how can we talk about labour reforms with the worst Minister of Labour and Employment ever? The infame Carlos Lupi just worked against transparency and flexibility to keep his political support intact – the corrupt and fat unions.

NPTO May 16, 2008 at 2:42 pm

Igor, I see your point. But I don not think PT has done any worse than previous governments on corruption: every single corrupt politician who made deals with PT supported every single other government before this one, and I don’t think they did it out of ideology. The problem of course, is that voters expected (well, at least I did) that Lula would do a lot better than his predecessors in this respect.

Now, I don’t think the two issues are completely disconnected. If you look at Lula´s main scandal, it basically involved transferring illegal contributions to allied parties to get their votes in Congress. These votes were for approving a fiscally responsible pension reform. As for Cardoso, his main scandal was the privatization of telecommunications, a laudable effort in itself, even though it was implemented under suspicious circumstances.

At the same time, there are congressmen who are probably honest, but will not vote for this kind of reform because they are either unreformed leftists or nationalists, or because they belong either to PT or PSDB (Cardoso’s party), and will not vote for anything the other party proposes.

It seems that a significant part of recent corruption scandals were caused by governments in political deadlock buying political support to pass some pretty sensible reforms. That’s why I think a political compromise of some kind would do us wonders.

Fabio Franco May 16, 2008 at 5:37 pm

Economist Fabio Giambiagi has written several books on the necessary changes that must be made in order for Brazil to grow sustainably. In his “Rompendo o Marasmo†, he gives the following suggestions:

Reduction of foreign debt;
Continuity of the accumulation of reserves;
Further opening of the economy;
Freely convertible currency (in 5 to 10 years);
Reduction of the coefficient públic debt/GDP;
Lowering of the current spending as ratio of the GDP;
Increase of the public investment
Gradual reduction of the tax burden
Changes in labor law, regulatory environment, legal security.
Improvement in the average scolarity of the Brazilian population.

See a few of his conclusions here (in portuguese):
“Sem clima para crescer† (“No climate for growth†)
http://www.cpdoc.fgv.br/workshop/textos/Giambiagi.pdf

Unfortunately, its been a couple of years since he wrote his book, and very few if any of his suggestions have been heeded, especially in the microeconomic area. Brazil is nr. 101 in the Index of Economic Freedom 2008. It was nr. 70 in 2007. Brazil is nr. 122 in the Doing Business 2008 ranking. In 2007 it was nr. 113.

NONE of the necessary reforms (social security, taxes, political, fiscal, labor law) have been made. NONE. And there is no way these reforms will be started in the 2 and a half years left of the Lula administration. The only reason Brazil has done tolerably well recently is because of the favorable international environment. But the underlying structure is weak and the socialist government is inept and currupt like no other before it (notwithstanding the comment above).

NPTO May 16, 2008 at 11:41 pm

Fabio, you’re wrong. Go ask Giambiagi if he does not think Cardoso and Lula’s pension reforms, the new targeted social policies, the measures to make the import of capital goods easier, and many other measures, were not real imrprovementes.Of course he is going to say that pension reform was insufficient. That is partly because it was, and partly because that is what any academic is bound to say about the politically feasible.

Now, many of the reforms you wish had taken place would already be done if the opposition did not waste our precious time with this “the most corrupt government ever” nonsense, instead of discussing the real issues you raised in the first part of your post.

Please accept my challenge: what corrupt politician or businessmen who was caught doing illegal deals with the Lula government was not an ally of Cardoso (or any other government in the previous twenty years)?

By the way, feel free to offer hard data on “the only reason Brazil did tolerably was globalization”. And please define “tolerably”: consumption growth in the poorer areas has grown at chinese-like rates, as any oppositionist economist will recognize (and inflation was kept low). Maybe you should realize the government is not thinking exclusively about you when making policy.

This sort of polarized politics is what is holding us down, and the longer we stick to this nonsense, the harder it will be for us to seize this opportunity.

techreseller May 21, 2008 at 3:30 pm

Before we get excited about the Brazilian numbers on Congressman under indictment, what is the number in the US? And how many have avoided prosection so far just by luck or by retiring? I used to work for a lobbying firm. The number of Congressman standing on and over the line is incredible.

Brazil is coming along. I had a long discussion with my friend from Sao Paulo over Christmas. He convinced me that the local governments are better than ever in Brazil. The federal has a ways to go, but the federal guys are learning on the local level (just like here) and moving up.

Cecilia January 29, 2009 at 9:09 pm

thanks this really helped me with my project

green May 15, 2009 at 4:05 am

Every success is based on continuous efforts. It is not possible be done over nigh.

anna May 15, 2009 at 4:07 am

anywhere are the same to live

Comments on this entry are closed.

Previous post:

Next post: