Trends by Martin Khor
15 November 2011
Brazil, a country on the go…
a long period of stagnation, Brazil implemented a successful anti-poverty
programme and then launched a new development and financial policy,
while revitalizing the strong role of the state.
week I visited Brazil and found it to be a country on the go. At
a seminar in Rio de Janeiro and later visiting government officials
and think-tanks in Brasilia, I found a country Brazil proud of its
recent social achievements and embarking on a new development strategy
to boost production.
The seminar was aptly titled “New Economic Thinking, Teaching and
Policies”, organized by the Ford Foundation, the MINDS economists’
network and hosted by BNDS (the Brazilian Development Bank).
Local and foreign economists and policy makers examined the new Brazilian
approach to development, which is now made more challenging because
of the expected return of global recessionary conditions.
For decades, Brazil had been the growth power-house of South America,
until the economy stalled in the 1980s and 1990s as a result of debt
and Washington Consensus policies, which stressed that the state should
have a minimal role in economic and social matters.
When Lula de Silva took over as President, he first focused on social
development, providing income to millions of poor families under the
famous Zero Hunger programme. Poverty and inequality was reduced.
In its second term, the Lula administration undertook a new phase
of “state activism”, explained Glauco Arbix, head of FINEP (an agency
that provides finance for technology-lined projects). The activism
included a 2007 growth acceleration plan, a 2008 productive development
policy and a 2011 Brazil major plan, which put production and job-creation
at the centre.
The “recovery of the state” had three aspects – transformative (dismantling
old incorrect policies), corrective (re-orienting and adapting of
goals) and constructive (building new institutions and policies).
Deputy finance minister Nelson Barbosa told the seminar that the good
terms of trade (export commodity prices have shot up) provided Brazil
with revenue to fund the social programmes that helped the poor.
major areas of progress have been growth with distribution and reduced
inequality; and reducing financial fragility (external debt fell from
43% of GNP in 1995 to 13% while foreign reserves grew to the present
15% of GNP).
Brabosa described the move away from the previous Washington Consensus
policies, with Brazil now avoiding extreme choices in policy trade-offs.
There is inflation targeting but also interest rate reduction; a floating
exchange rate regime but with reserves accumulation; and fiscal targets
while increasing income transfers to the poor and providing incentives
for businesses to invest.
Another aspect of Brazil’s new development policy beyond the Washington
Consensus is the conviction that economic development requires an
active role of the state, said Barbosa. The state’s roles include
regulating the market (including towards sound investment and consumer
protection), long-term planning (including infrastructure growth and
innovation); sound financial policies; providing universal public
services; and re-distributing income.
The Brazilian growth model has gone through three phases – wage-led
expansion (with income transfers and higher minimum wages leading
to increased consumption and a recovery of investment); investment-led
growth (higher public investment and financial incentives to private
investment) and the new phase under President Dilma with emphasis
on education and innovation to spur long-term growth.
Not everything is rosy, however. Jose Antonio Ocampo, a Columbia
University economics professor and former head of the UN’s Economic
and Social Department said in the last 5 to 8 years Brazil had made
a promising come-back. But there are some serious problems – the
low investment rate; interest rate is the highest in the region; the
high appreciation of the currency, which has affected export competitiveness.
The seminar also heard about a unique Brazilian institution – the
Brazilian Development Bank which hosted the seminar in its headquarters.
The Bank (which lends out more than the World Bank) is not only the
main facilitator of Brazil’s industrial policy and development projects
but also played a key role in formulating the policies that enabled
Brazil’s quick recovery from the 2008-9 recession.
In Brasilia, I met the head of another unique institution, the IPEA,
an economics think-tank under the President’s office. Marcio Pochmann
said that IPEA’s priority is to help reposition Brazil in the new
world, in which the economic crisis will be deep and prolonged, global
governance is under threat and international institutions will weaken.
He noted that the G20 leaders are having a weak response to the crisis.
In this situation, the South must find a stronger voice in global
I also had a most interesting discussion with Prof. Marco Garcia,
a famous historian who is President Dilma’s chief foreign affairs
advisor, having also served President Lula in that capacity. Garcia
is obviously a learned man with deep knowledge of the South American
region and the world. He has played a significant role in developing
Brazil’s policy towards Asia, Africa and the developed world.
And of course most importantly in South America of which Brazil is
the giant. A significant point he made is that Brazil is promoting
a type of regional integration that should be mainly based on production,
energy and infrastructure, rather than an integration led by trade
liberalization which tends to benefit only the strong countries and
could thus cause disharmony among the region’s countries.
The Foreign Minister Antonio Patriota has the unassuming air of a
sincere man of diplomacy, but he carries the burden of leading Brazil
in WTO and regional trade relations, in the climate negotiations as
well as all other aspects of foreign policy, including supporting
the President in the G20 Summits.
Brazil believes in South-South cooperation. It takes its role in
the BRICS (the so-far informal but getting more formalized grouping
of Brazil, Russia, India, China, South Africa) seriously, as an alliance
of big emerging countries that is a counter weight to the developed
But Brazil has also developed strong links with Africa. And Patriota
gave a strong impressions that Brazil is very interested in stronger
economic and political relations with Asia, especially China but also
Asean. He will soon attend the Asean ministerial meeting, at which
Brazil will be one of the “Asean-Plus” countries for the first time.
The Ministry’s focus will increasingly be on the Rio-Plus-20 Summit
on Environment and Development that Rio will host in June 2012.
There are hopes that the 20th anniversary of the original
Rio Summit will be attended by many political leaders and that the
Summit will give a much needed boost to multilateral cooperation at
a time when the world is facing two increasing crises – economic and
By next June the global economic crisis will be at a high point, and
Brazil will need all its skill to steer the Summit in a way that keeps
the flame of multilateralism and international cooperation alive when
countries are more tempted to look only after their own interests.