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THE NEW BRAZIL: ACHIEVEMENTS AND CHALLENGES

THE NEW BRAZIL: ACHIEVEMENTS AND CHALLENGES. Edmar Bacha Brazil Seminar. Columbia University September 10th, 2014. BRAZIL’S ACHIEVEMENTS SINCE MID 1990s. Inflation stabilization Income gains of poor families Declining unemployment rates Lower real interest rates

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THE NEW BRAZIL: ACHIEVEMENTS AND CHALLENGES

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  1. THE NEW BRAZIL: ACHIEVEMENTS AND CHALLENGES EdmarBacha Brazil Seminar. Columbia University September 10th, 2014

  2. 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

  3. INFLATION BEFORE AND AFTER THE REAL PLAN, 1979-94 AND 1994-2009 3

  4. INCOME DISTRIBUTION IMPROVED AFTER STABILIZATION, 1995-2012 Cumulative Yearly

  5. UNEMPLOYMENT IS THE LOWEST IN THE SERIES, 2002-2014

  6. REAL INTEREST RATES ARE LOWER THAN IN THE PAST, 1996-2014

  7. BRAZIL: A NET CREDITOR TO ABROAD(GROSS AND NET EXTERNAL DEBT AS A RATIO TO EXPORTS, 1970-2014)

  8. 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

  9. LOW GDP GROWTH RATES SINCE THE EARLY 1980s

  10. INFLATION-GROWTH MIX IS UNFAVORABLE (2011-14*)

  11. THE MOST EXPENSIVE COUNTRY AMONG THE BRICS

  12. TAX BURDEN IS HEAVY(OECD AND EMERGING MARKETS, 2013)

  13. SOCIAL SECURITY IS A BIG PROBLEM(OECD data for 2005)

  14. INVESTMENT RATE IS LOW AND BNDES OFFERS LITTLE HELP

  15. INFRASTRUCTURE LAGS

  16. EDUCATIONAL LEVELS ARE POOR(PISA 2012 RANKINGS & GRADES, SELECTED COUNTRIES)

  17. 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

  18. 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 Result is less competitiveness and lower productivity

  19. ALTERNATIVE INDUSTRIAL POLICY: INTEGRATION TO INTERNATIONAL PRODUCTIVE CHAINS Three Pillars

  20. CONCLUSIONS 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

  21. Thank You

  22. 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: MacroEconomicResearch Banco Itaú BBA. • S9: Edmar Bacha and Regis Bonelli, “Accounting for therise and fallofBrazil’s Post-WW-II GDP growth”, July 2012. Availableat: 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 theSeminar: WhitherLatinAmerica? Rio de Janeiro: Vargas Foundation, August 9-10, 2012. Updated in July 2014 by Luísa de Azevedo Senra Soares. • S14: World EconomicForum, apud Financial Times. • S15: OECD, PISA.

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