Brasilia, Brazil.
The evolution of the costs of raw materials (soybeans and iron ore, for example) aptly illustrates two recent eras of the Brazilian economy. The first was from 2003 to 2013, when high global costs led to economic growth, higher wages and employment rates, and helped the government advertise schemes like Bolsa Família. At the same time, high costs also masked structural disruptions in the economy at the national level – such as low levels of productivity and investment – thus opening the door to higher public spending.
The second generation was marked by a sharp drop in the value of raw materials. In an attempt to get around the problem, the government has resorted to subsidies to certain sectors of the economy, tax incentives, price controls and additional loans submitted through state-owned banks. But this strategy was not effective enough to stimulate expansion and contributed to a state of insecurity that in the end discouraged investment and increased the deficit of the public account. As a result of this procedure and the slowdown in the external economy, the fall in Brazil’s economic activity led to a contraction of the country’s GDP of 3. 8% in 2015.
In the midst of this situation – and the many questions about the effect of the recent slowdown in social progress – the World Bank has published a Systematic Country Diagnosis (DSP) for Brazil. The diagnosis analyzes the main drivers of Brazil’s progress in recent years. especially for the poorest 40% of the population. It also examines the main obstacles to growth, first of all to try to overcome them.
One such obstacle is the low productivity rate of the Brazilian economy. Between 2003 and 2014, minimum and genuine wages increased by an average of 68% and 38%, respectively, while the employee-consistent productivity rate increased by only 21%. Behind this discrepancy hide:
The report also brings some smart news: despite the difficulties facing the Brazilian economy, the country can continue to implement its policies aimed at further reducing poverty and inequality. According to the diagnosis, such policies are successful and the social signs of the poorest at relatively low cost: in 2014, social coverage systems accounted for less than 5% of total public spending.
Promoting new social advances requires improving the quality of services such as fitness and education. This, in turn, calls for greater potency in spending and the use of public goods, as well as stronger fiscal institutions and processes to ensure that the possible choices made are, in fact, the most pro-poor ones.
The paper also notes that a giant component of public investment still goes to the non-poor, especially in social security: this accounts for 30% of public spending, more than education and fitness combined. Some of this sum is also transferred to corporations. through tax exemptions, with little transparency and efficiency. Reducing those transfers will lose budget that can be used for public facilities and policies for the disadvantaged.
Finally, the document recognizes Brazil’s role in the fight against climate change and the alleviation of deforestation. For example, the country has developed low-carbon agriculture, among other technologies. However, to promote green and inclusive development, the country wants to make further progress on water resources and land control issues. It also wants to make progress on urban issues, such as disorganized urban sprawl, crisis threat control, and pollution.
Making adjustments, regardless of the issue – the economy, public services, the environment – means making options possible and generating political consensus around an agfinisha reform. This is not the first time the country has had to do this: Brazil has shown itself capable of making large-scale adjustments. The demanding situations that arise until the end of the commodity supercycle are important, but Brazil is capable of overcoming them.
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