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Floundering Brazil

Dragged down by inclement weather in soybean producing regions of the country, recently published numbers from Brazil’s statistical agency were absolutely dismal: GDP grew only 0.2 per cent quarter-on-quarter and a meager 0.8 year-on-year. Still, the 7.3 per cent contraction in agricultural output is not what really bothers local and foreign analysts.

The deeper problem is that industry has failed to respond to government stimulus efforts, which range from reducing constraints facing consumers through credit expansion to increasing taxes on imported goods. Even a modest weakening of Brazil’s currency against the dollar hasn’t helped, largely because the currency remains uncompetitive among the basket of currencies that represent the country’s major trading partners.

With the global slowdown darkening moods, Brazilian business faces some troubles of its own: inventory is uncomfortably high, and there are possibilities that red hot demand for Brazilian commodities could slacken, further dampening domestic demand in response.  Policy debates are raging in Brazil and among foreigners who follow the country: Is Brazilian policy fomenting uncompetitive industries at the cost of the consumer? To what extent is the ruling coalition’s response to recession being dictated by lobbying from large state-subsidized companies? Behind them all is that dreaded and recurring question: is Brazil, once again, confirming its unique position as the eternal “country of the future”?

While concrete answers to these inquiries at the present stage might be imprudent and premature, one of the country’s most distinguished and accomplished leaders, former president Fernando Henrique Cardoso, offered his thoughts in an interview with The Economist early this year on the herculean obstacle to long-term growth:

Now we have no alternative other than to increase productivity. But the problem with productivity is now not inside the firm, it is outside. It is government; it is roads; it is taxation…Look at the tax burden: it is up above 36% of GDP. Our GDP now is over $2 trillion. Thirty-six percent of $2 trillion is a lot of money. But they are expanding the bureaucracy; over-expanding without taking into account the need to renew infrastructure or concentrate on education. The population will react against still more tax increases. This has to force the government to be much more rational in the use of this money.

Confronting the over-expanding bureaucracy and extreme tax burden is a must for Brazil’s leaders, now and in the near future. This will be tough for a president and a party that wants to redistribute income, promote and shelter domestic industry and enhance opportunities for the poor at the same time.

One by one the BRICs are showing the world that politics and policy still matter; nobody can take growth for granted.

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  • Kenny

    I see Brazil as too corrupt and too socialistic to really succeed. And the country’s population is no prize.

    I hate to sound so politically incorrect, but the more democracy filters down in Brazil, the more dysfunctional the country will become.

    IMHO, under no circumstances can Brazil succeed unless the West is booming, and that ain’t the case these days.

  • thibaud

    “nobody can take growth for granted”

    Indeed. A pity we can’t match Sweden’s growth rate. Perhaps we should preach less and spend more time listening to and learning from other advanced nations.

    Starting with those thriving northern “blue”, or maybe purple, nations that long ago reformed their banking sectors: Sweden and Canada.

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