When the term BRIC was coined to identify the world's four major emerging economies, many questioned the rightfulness of putting Brazil next to Russia, India and China. Brazil is the tenth biggest economy of the world, has 190 million inhabitants and immense endowments of agricultural, mineral, and energy raw materials. In spite of its potential, the Brazilian economy never lived up to the expectations. Between 1998 and 2003, average annual growth stopped at 1.6%, with significant fluctuations. Since 2004, the economic situation has constantly improved and growth has reached 5.4% in 2007. In the 2008-2010 three-year period, the government forecasts a 5% average increase in domestic production. Inflation, a traditional scourge in Brazil, has been kept under control by the determination of the Central Bank to keep prices in check, as well as by the strong appreciation of the national currency.
Price stability and the reduction of public foreign debt are crucial objectives of the President Luiz Inácio Lula da Silva's strategy, who named economic volatility and high inflation as the worst enemies for vulnerable social strata, such as the poor and the indigent. Lula, who was born in an extremely poor family in one of Brazil's most backward regions and has a recent past as leftist union leader, has put at the center of his government's agenda the struggle against poverty and socioeconomic exclusion. This has translated into monetary transfers to the poorest families (with the Bolsa familia program) and into a macroeconomic policy geared toward sustainability and stability of growth. According to the Economic Commission for Latin America and the Caribbean, the poverty rate has gone down significantly, from 38.7% of the population in 2003 to 33.3% in 2006, while in 2007 the middle class has finally become the largest social segment of Brazilian society, with 86 million individuals belonging to that group.
The government's fiscal policy has been conservative, aiming for a 3.8% primary surplus over GDP. Such financial rigor has enabled Brazil to reduce public debt to 42% of GDP. Strong international demand for primary goods has certainly been a factor in favoring economic dynamism. However, after reaching a height of $46 billion in 2006, the trading surplus should shrink to $26 billion in 2007, due to slowing international demand. Brazil is diversifying its exports, both in terms of the product mix and of markets of destination. Foreign exchange reserves have ballooned, reaching $200 billion, making Brazil a net international creditor in 2007, something unimaginable even a decade ago.
The Portuguese-speaking country receives hefty inflows of foreign direct investment. According to A.T. Kearney's annual study, in 2007 Brazil was considered the sixth most interesting economy where to invest in manufacturing. The country's growth perspectives will depend on its ability to increase the rate of investment and the propensity to save, which are still low when compared to other emergent economies, as well as boost productivity. For all its brilliant economic performance, Brazil still needs sizable investments in infrastructure and education, and to take serious measures to address excessive red tape, corruption, and crime. For example, in World Bank's Ease of Doing Business rankings, Brazil ranks as low as 122nd among the 178 countries of the world considered.
by Antonella Mori ,
Assistant Professor of Economics, Department of
Institutional Analysis and Public Management, Bocconi University