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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 - PowerPoint PPT Presentation
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THE NEW BRAZIL: ACHIEVEMENTS AND CHALLENGES
Edmar BachaBrazil Seminar. Columbia University
September 10th, 2014
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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
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INFLATION BEFORE AND AFTER THE REAL PLAN, 1979-94 AND 1994-2009
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INCOME DISTRIBUTION IMPROVED AFTER STABILIZATION, 1995-2012
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Yearly
Cumulative
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UNEMPLOYMENT IS THE LOWEST IN THE SERIES, 2002-2014
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REAL INTEREST RATES ARE LOWER THAN IN THE PAST, 1996-2014
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BRAZIL: A NET CREDITOR TO ABROAD(GROSS AND NET EXTERNAL DEBT AS A RATIO TO EXPORTS, 1970-2014)
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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
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LOW GDP GROWTH RATES SINCE THE EARLY 1980s
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INFLATION-GROWTH MIX IS UNFAVORABLE (2011-14*)
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THE MOST EXPENSIVE COUNTRY AMONG THE BRICS
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TAX BURDEN IS HEAVY(OECD AND EMERGING MARKETS, 2013)
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SOCIAL SECURITY IS A BIG PROBLEM(OECD data for 2005)
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INVESTMENT RATE IS LOW AND BNDES OFFERS LITTLE HELP
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INFRASTRUCTURE LAGS
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EDUCATIONAL LEVELS ARE POOR(PISA 2012 RANKINGS & GRADES, SELECTED COUNTRIES)
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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
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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
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Result is less competitiveness and lower productivity
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•Reduction of ‘Brazil cost’ (tax, bureaucracy, logistics)
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•International trade agreements
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•Replacing high tariffs by a more devalued exchange rate
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ALTERNATIVE INDUSTRIAL POLICY: INTEGRATION TO INTERNATIONAL PRODUCTIVE CHAINS
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Three Pillars
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CONCLUSIONS
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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
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THANK YOU
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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: MacroEconomic Research Banco Itaú BBA. • S9: Edmar Bacha and Regis Bonelli, “Accounting for the rise and fall of Brazil’s Post-WW-II GDP
growth”, July 2012. Available at: 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 the Seminar: Whither Latin America? Rio de Janeiro: Vargas Foundation, August 9-10, 2012. Updated in July 2014 by Luísa de Azevedo Senra Soares.
• S14: World Economic Forum, apud Financial Times.• S15: OECD, PISA.
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