Transcript Can we say that there is sustainable growth in Brazil?

Can we say that there is
sustainable growth in Brazil?
2011 PEGNet Conference
8th September 2011
Hamburg - Germany
Fabio Veras Soares – IPC-IG
(UNDP/SAE/IPEA)
0
Three key factors in the current pattern of equity
and economic development:
Economic Stability
Expansion of Social Protection Programmes and
Social Services
Institutional reforms that guaranteed economic
stability and the expansion of social protection
and social service
1
Economic Stability
o 1980’s and 1990’s: low and volatile growth rates combined,
o
o
o
o
o
o
o
successive failure of stabilization plans and hyperinflation –
widespread indexation of contracts.
1994: Plan Real – monetary reform (monetary anchor and
overvalued exchange rate)
Institutional reform.
1999: inflation targeting and fiscal surplus targets
2000: Law of fiscal responsibility.
Continuity between Cardoso (1995-2002) and Lula’s terms (20032010)
Response to the 2008-9 crisis – fiscal stimulus package (minimum
wages, credit expansion and Bolsa Família expansion.
Recent fiscal consolidation.
2
Social Protection and Inclusive Growth
Expansion of Social Protection Programmes
o Social Protection as social insurance: dual welfare system:
formal/urban versus informal/rural sector workers
o Incipient SP for informal workers (authoritarian regime to 1988
Constitution: rural pension and non-contributory pension (from
Funrural to universal rural pensions) and disability grant (from RMV
to BPC)
o Universal Health System
o Universalization of Primary education (school meals)
o Expansion of the CCTs programmes and consolidation of them
under Bolsa Família (coverage: 25% of the population)
o Social assistance expenditure increases from 0.7% (0.08%) of the
total social expenditure of the federal government (GDP) in 1995 to
6.8% (1.09%) in 2009.
o Social security (including rural pensions) increased from 5% of the
GDP to 7.28% in the same period.
o Tax burden: 26% of the GDP to 35% (1998-2008).
3
Features of the recent growth process in Brazil
o Growth Rates: bottom of the table of the BRICS: 4.4% between 2004-2010.
Higher than the 2% observed between (1981-2002) but well below of the
one observed during ISI years: 7.5% (1947-1980)
o In Brazil, the poorest households have experienced a much faster increase
in their income than the richest; the increase in the real income of the poor
was higher than the GDP growth rates for India. Bringing both poverty and
inequality down. Household income growing 2 p.p more than GDP rates
according to household survey.
o The internal consumption fueled by the emergence of a large lower middle
class and the expansion of (expensive) consumption credit jointly with the
anti-cyclical measures adopted in 2008-9 explains why the crisis was
relatively mild in Brazil (-0.8% in 2008) and why growth bounced back so
vigorously in the following year (7.5% in 2009).
4
Challenges of this growth process
Constraints:
 a) Highest interest rate in the world; b) overvalued exchange rate and
its impact on the manufacturing sector; c) lack of private funds to
finance long-term investment (increasing the fiscal burden for
government); d) lack of domestic savings in an a credit-based mass
consumption economy.
New policies:
a) Reduction of interest rates to ease private investment (specially in long
term); b) reduce leakages – consumption credit without hindering
redistributive policies; c) active industrial policy (innovation) to avoid
specialization in the commodity sector; d) emphasis on less fiscal
sensitive redistributive mechanisms like more progressive taxation and
improving quality and distribution of social expenditure.
5
Many Thanks
6