Brazil’s economy

Wrong numbers

More inflation, less growth

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Total inflation on the first two years: IGPM on Fhc, 35.58%; Lula, 23.66 and Dilma, 22.91. On IPCA numbers: Fhc, 40.84%; Lula, 24.30 and Dilma, 21.11. We are after the long time spent on high interest rates on Fhc's government that harmed our industry so badly. Yes, we have many problems, but the numbers show we´re after them.
Cant't compare Brazil and other emergents. There are too many differences starting comparing our per-capt revenue rate with theirs. What we´re doing indeed is bothering a lot of interests while we´re correcting mistakes done since we opened our economy.


That people argue over "low growth" in Brazil in the during the worst international economic crisis since the Great Depression shows how far the country has come in the past 20 years.

Brazil is a massive country and talking about it like a homogenous, singular entity is journalistically convenient but really does help to understand the country. The regional, social class, etc. differences in growth, income, infrastructure... long list, are such that even GDP figures aren't really that helpful.

This week a business survey indicated that 70% of businesses are planing to hire more staff this year. In the end this is all that will count come elections in 2014. The average Brazilian - like the average anyone - just wants a job to pay the bills and get on in life. Employment levels and inflation are the single most important factors in Brazilian politics, not growth, which is just a number on a page to most people.

Boring is the new exciting in Brazil and I say that is a good thing.

Live United in reply to BR-NZ


So tell me what country on the planet you think is a "homogenous, singular entity" and Brazil´s size doesn´t mean it is more difficult to manage, that is just an excuse, almost all Brazilians speak the same language don´t they? Imagine the government of Switzerland, the different languages, cultural groups, geography etc., funny how they manage to make things work eh!

BR-NZ in reply to Live United

You are aware of a little thing called history?

It's not an excuse, it is a reason.

In the last 500 years Brazil has had the last 17 of anything that could be called competent management. Regional developmental levels variations are so vast, that using Switzerland an analogy is laughable. Try using Southern Europe and North Africa mixed together as your baseline.

Just look at how screwed up the US is, this paper frequently says the US us becoming ungovernable, well, Brazil is barely governable for many reasons as well. The political system seemed have been designed to make life as difficult as possible. The Federal system in Brazil basically forces the States to compete with one another for Federal resources, you have crazy situations were State to State you have different taxes so a box of orange juice can be taxed multiple times before it even arrived in the shop.

Brazil is improving on most metrics, some surprisingly fast, some depressingly slow. But I have a feeling many people here don't understand just how badly Brazil was managed by the dictatorship. 1995 was effectively Year Zero. Things could be improved a lot faster, but there is the reality of the politics to take into account. Very few parties in Brazil has any ideological foundation, most a simply vehicles for gaining resources from the Federal Government.

Me, like a couple of the others that post on Brazil are not dupes, we are fully aware that Brazil could be a lot better, but we actually know how bad it was. It is not like Brazil was doing fine and then FHC, Lula and Dilma came along and wreaked everything (they have all had exactly the same policies). To understand why people are critically supportive of the PSDB-PT administrations you need to understand the reality of the past and present. Again, not an excuse, it is a reason.

Personally I think all of the "Brazil Takes Off" rhetoric of this and other papers, then the "Brazil Growth Terrible" slap-down is just journalism for the sake of journalism. The headline should have been, "Brazil Finally Stabilised, Economy Now Normal." but that doesn't sell papers.


It's quite saddening to see Brazilians self-loathing attitude toward their own country. It really doesn't leave much guessing as to why the "future" never sets foot over here.

BR-NZ in reply to reggiegroove

Not everyone is like that, by a long way.

Remember reading posts here you get a tiny sliver of Brazilian attitudes, a very narrow band of people. An English speaking Brazilian that reads the economist is not really a very broad segment of the population ;-)


Cooking the books and denying the obvious - more trust-enhancing attitudes by Brazil's government.

Joacyr Barbosa de Oliveira Filho

Unfortunately for the author of this ominous article, rainfall is picking up all over the Brazilian territory, hydroelectric power supply is getting back to normal, and electricity fares will be cut down, thus making Brazilian industries more competitive, which proves that wishful thinking cannot make a powerful economy fare poorly.

Joacyr - grow up, nobody wishes the negative upon us. However, that ridiculously little is accomplished by the governments in Brazil is a fact you cannot seriously dispute.

With regards to making Brazilian industries more competitive, it is certainly not with Guido's constant meddling and sector-specific measures that any efficiency will be achieved. Furthermore, ordering a reduction in energy prices top down contributes to economic uncertainty (have you seen the impact of securing the diesel price top-down to contain inflation on Petrobras' cash situation?)

Dear MM4E, (Does it stand for "My Mighty For Eeners"?)

Your unfathomable naïveté (nobody wishes the negative upon us - LOL) can only be surpassed by your unawareness of what has been going on. The decrease in electricity fares springs directly from the Brazilian government's decision to abolish major taxes in the electricity sector. The measures will come into effect in 2013 and consist of the abolition of the general reserve reversion tax (reserva global de reversão or RGR) and the fuel consumption account tax (conta de consumo de combustíveis or CCC), as well as a 25% reduction in the energy development tax (conta de desenvolvimento energético or CDE). Those taxes were enacted during previous governments to subsidise investments in the electricity sector and help fund improvements to Brazil's vast electricity grid. Although they were initially intended to be temporary measures, they have persisted and increased over the years, resulting in Brazil having one of the highest electricity costs in the world. Besides that, the Brazilian government has decided to renew a number of electricity concessions due to expire between 2015 and 2017. Those concessions will be granted for a period of up to 30 years.
As you will have noticed, no top-down measures have been laid out.
If you are really serious about posting sensible and unbiased comments and making your case, make sure you strive your utmost to do some previous reading so as to get all of your facts straight.
Kids will speak their minds without checking their facts beforehand so maybe I am not the one in need of growing up after all.

@Joacyr said "The decrease in electricity fares springs directly from the Brazilian government's decision..."
Government decided (as you well pointed out) to bring electricity prices down at a time when the country does not have enough electricity generation capacity. That is exactly the opposite that should happen. Scarcity should bring higher prices. Higher prices would bring energy saving measures. Lower prices will, surely, bring higher consumption and risk of supply interruption to the economy. So the poster you are replying to was correct. End of story. All of your rushed facts do not change that.

Alexandre Marinis

The article gets the economics right, but the politics wrong. Given the sizeable reduction in Brazil's real annual interest rate (down to 2%, from 13% a decade ago), it is correct to argue the country can lower its primary surplus without jeopardizing public debt dynamics. The point missed, however, is political and a key one. If President Dilma Rousseff's administration lowers the official primary surplus target, powerful political lobbies in Congress (such as public workers and retirees) will mobilize almost immediately to capture the extra money the lower fiscal target will leave on the budget table. If the government maintains the target as is, the president (and not the lobbies) can choose where the extra budget money can go to. And given Brazil’s infrastructure needs, it is far better to allocate the extra money to investments than to payroll or retirement benefits.

Danilo1980 in reply to Alexandre Marinis

Alexandre, the lack of investor confidence is the central issue Dilma is facing right now. You know, there’s poor dialogue between the government and several sectors. Dilma has a terrible weakness that is centralizing decision making, which causes the delay in some relevant matters. Besides, some of her closest assistants are terribly weak when compared to many of those during Lula years, even weaker if we compare to FHC staff. Anyway, many predictions or analysis made by “The Economist” about Brazil proved wrong, for good or for bad. Nice to read your comment.

MM4E in reply to Danilo1980

Well, I favor that simple approach to the convoluted approach that relies on 'deep analyses' used by the Brazilian government and its highly efficient and agile 30+ ministries, resulting in very specific interventionist, opaque and trust-eroding policies. The wobbly implementation and legal framework supported by the 'black box' Judiciary obviously don't help either.

For your benefit, the most efficient economies function with simple, general and transparent rules - no 'porems', no 'despachante', no 'costas quentes', no almighty 'cartorios'. But, obviously, that would mean the elimination of thousands of positions that are filled not with the most competent, but with the relatives and friends of politicians - who would want to eliminate the chance of that 'mamata'?

So, who can change all that but the government, which is elected by whom?

Danilo1980 in reply to MM4E

You started well, but then your lack of knowledge let you fall into the most hilarious clichés. Interesting… I’ve seen that before… You should disguise it a little better. Just saying…

“For your benefit, the most efficient economies function with simple, general and transparent rules”.
Really? Did you read the previous posts?

“no 'porems', no 'despachante', no 'costas quentes', no almighty 'cartorios'”.
Here we go again... C’mon man, I know you can do it. Try again.

Again, did you read what that Alexandre guy and then what I wrote? So, mentioning “mamata” is the best you can do? The whole problem, in your opinion, is that Dilma’s government is corrupt? That’s all? Sorry, MM4E, but your train of thought is really poor. Using your empty style, I’d say you have no “estofo” to argue about economics or politics. You’re just in the wrong place. No offense. Lots of wrong things in Brazil, but you’d rather call the kids and try some video game forums.

MM4E in reply to Danilo1980

If the President's closest assistants are weak (your point), her dialog is weak (your point, too), it would seem there's no leadership at all.
But, in a democracy, however incipient, that means congress and the senate taking over (remember the constant remarks about the need to find compromise with congress?) - who elects congress and the senate? You guessed it, the people. Where does not one week go by without news of wrongdoing, cronyism and corruption? Congress and the senate.
Hence, back to my original point, but I was glad to spell it out to you.
All other thoughts are really secondary - the decision being that of allocating more of the (doctored) surplus to infrastructure would mean more of what we're already seeing: Projects that take 5x as long and cost 5x as much as they would in normal circumstances (i.e. with at least semi-honest agents involved). The decision to 'strengthen' government staffing would only further bloat the notoriously inefficient state.
I am still struggling with understanding your remarks on my age and video games, but I will take those as compliments.

Danilo1980 in reply to MM4E

MME4, you should read it again. I said, “the lack of investor confidence is the central issue Dilma is facing right now”. Can you understand how this situation impacts on our economy?

Sorry, but once again you made just some simplistic remarks on the scenario. “Projects that take 5x as long and cost 5x as much as they would in normal circumstances”. Be more specific. So, do you think this is the root of our problems? How often do you think it happens? Just like your friend (or your other nick), you based your opinion on common sense, nothing else. Like I said, there are thousands of problems in Brazil, and I’m very critical towards them, but the same way I can’t stand those that see some kind of wonderland here in Brazil, I have no patience with people that can barely organize their thoughts, have no knowledge to share, and keep saying the same cr@p over and over.

Hank Chinaski

Geee. What happened. I thought, as per reader Abelardo Jurema that "Brazil had the UK's economy in the bag". Oh well. Not surprising he doesn't show up anymore.

Anyway. We all saw that before. Welcome to high inflation and low growth, Brazilians.

I predict that in the comments of this very article we will have at least one of these:

-"You shoulda taka care of the Englanda economy. The royalty costa lota maney! Don't interfere our country, most beautifa in the world Brazil!!!!!!"

-"Yeah but Brazil is still growing more than the UK" (completely ignoring the article's "Stung by criticism, Dilma Rousseff, the president, pointed out that Brazil is still growing faster than Europe. That is true, but hardly a very illustrious comparison: most other emerging economies, including in Latin America, are doing far better.")

-"Chinaski you have psychological problems and hate Brazil"

Now the most classic one (my comments in brackets):

"Brazil is a young country (colonized much before America) and all countries have challenges. Change is occurring slowly (slower than other countries i.e. Brazil is lagging further and further behind) but there are lots of good points. The production of sweet potato and the consumption of air conditioners is up 2.34%. Plus Brazil has the best HIV programme in the world."

Just wait and see....

Gabriel Kohlmann

Is Brazil running to be the next Argentina? Just keep Mantega in office, and for sure this will be the result.

BR-NZ in reply to Gabriel Kohlmann

You are joking?

Mantega has been Finance Minister over a period of the worst international crisis in living memory and you are complaining about what exactly? Low growth? I'm not sure if you are old enough to remember Collor, but the last time Brazil was hit but a international crisis the government froze everybody's bank account and raided their savings, inflation spiralled to around 1000% and the country nearly collapsed and had to go begging to the IMF for a bailout. Now Brazil is a contributor to the IMF.

Mantega might not be the most exciting guy on earth by you can hardly accuse him of the kind of poor management that is going in in Argentina.

MM4E in reply to Danilo1980

So, you guys must have been living under a rock between the Collor presidency and Guido becoming minister. Or were 1994 (Mexico), 1997 (Russia), 1998 (Asia), 1999 (Brazil macro), 2001 (9/11), 2002 (liquidity crunch in connection with the Brazilian presidential elections) no crises? Some of them could certainly have been managed more aggressively, but it was mostly Pedro Malan's conservatism and credibility that built up the trust that allowed the fat years that followed under Lula.
Now, with regards to Guido, the forecasting Elf, it's crystal clear to many people that he is not terribly endowed and one can speculate if TE's recommendation for Roussolph to fire him did not delay something she had already planned.
Also, I wonder what names could be considered to replace him - scary!

MM4E in reply to BR-NZ

Not much could go wrong, because in Brazil there were no markets for the structures that generated the bubbles that ultimately blew up in developed markets. Plus leverage was generally very low. So all he had to do was sit back and watch. Sure, some sector specific consumption-enhancing measures were taken, but in the long run we see those are all the more disrupting.
"Brazil is a contributor to the IMF" - the surpluses are not the government's merit, but the result of the commodity boom which Lula was able to enjoy (and also fund the Mensalao).


I was very worried when I read the news about the goverment's desire to change the Fiscal Responsibility Law, and I think it is the clearest sign yet that the PT is desperate to pursue growth at any cost. I think the fiscal mismanagement could become much worse in the next two years leading up to the 2014 election. But at the end of the day I think the unemployment number is far and away the most important indicator. If unemployment stays low, the PT wins in a landslide. If it doesn't, things could get interesting.

Plenty of Latin American leaders have won reelection recently despite poor fiscal management and high inflation. Hugo Chavez and Cristina Kirchner are certainly the first two to come to mind. But the two of them depended on high commodity prices to boost their oil and soy exports, respectively. But Brazil doesn't have any major export to prop up its entire economy in a similar fashion. Mineral prices are falling, agricultural exports are only a minor part of GDP, and deep-sea oil production is going at a very slow pace. I don't really see what possible stimulus package could boost growth in a major way in the short term. It looks like Brazil is inevitably bracing for a prolonged period of sup-par economic performance. Even if Dilma does win reelection in 2014, I have a feeling the PT will be pretty unpopular by the time 2018 comes around.

Cloudwarrior in reply to Ferromanganese

Chavez and Kirchner governments lie through their teeth and about the economy and almost lavish spending on certain segments if the population. Effectively bribing their populist arse into power with increasing their fiscal mismanagement.

Dilma would need to start limiting the free media, lie about the economy, continually attack another country as imperialist (UK and US are already taken) and quite literally become an autocrat.

Argentina and Venezuela are only one crisis from falling over. Hopefully Brazil isn't.

BR-NZ in reply to Ferromanganese

"I was very worried when I read the news about the goverment's desire to change the Fiscal Responsibility Law", I wouldn't be. One of the marks of the PT administration is to do as little as possible to rock the boat. The PT "tweak" they don't swing hammers around. Even things that seem like a big deal aren't.

The PT's popularity is going to depend of the effective implementation of the planned infrastructure projects. Appalling logistics is Brazil's biggest economic bottlenecks, it distorts everything; export competitiveness but more importantly internal costs and therefore inflation.

When the road, rail and ports come online over the next 5-10 years this should be addressed. The sale of the contracts to the private sector offers hope it will work. I was in Guarulhos airport two week ago and I was amazed at the change in only 3 months since the sale of the concession, new high quality bathrooms, less hassle with lines, helpful staff. I was very surprised, fingers crossed this is the shape of things to come.

Ferromanganese in reply to BR-NZ

I agree that the PT will probably tweak the law, not gut it. But it's still very worrying for Brazil's long-term fiscal outlook. The country is going through a massive demographic dividend, but over time as the population ages growth will slow and pension liabilities will mount, and debt will explode. This is exactly what we're seeing in the U.S., Europe, and Japan. Aging societies represent a very new economic challenge that we're just starting to understand. The fact that the government is already resorting to raiding the sovereign wealth fund while it continues to let the cost of its public sector expand uncontrollably reinforces the fear that, later down the road, the country could be headed for a Southern Europe style sovereign debt crisis. What Brazil needs isn't a massive Keynesian stimulus to spur growth, it needs structural reforms that fix its underlying competitive weaknesses.

I certainly agree with you that the infrastructure projects will be a big boost, improving on a major competitive weakness while also providing jobs for lots of construction workers. It's great to see that the PT has finally changed its "all privatizations are bad" philosophy to be a bit more practical. But these projects will take years to kick in; construction shouldn't start until 2014 at the earliest, and given the slow pace of things here in general, maybe even later. Not in time to make a big difference for the next election.

The PT's popularity is going to depend much more in the short term on the unemployment rate, which has been going in its favor for a while. But in general it is quite hard to maintain a low unemployment rate amid low-growth conditions for an extended period of time. When growth is low, job creation tends to lag, and eventually the unemployment rate ticks up. The only economy I can think of that has had low growth and low unemployment for an extended period of time is Japan, but that has a lot to do with the fact that it is the oldest country in the world and thus has a lot of retirees and few workers. I highly doubt that the unemployment rate will still be about 5% by October of next year, but who knows, maybe I'll be surprised.

BR-NZ in reply to Ferromanganese

Agreed on the comment about structural reform. But politics is politics and the Brazilian system adds to the difficultly of getting things done quickly and efficiently, there are so many competing "bancadas" within the parliament it really is a miracle that Brazilian politics operate at all. That said the government efficiency - or lack of - is improving. Over the past 15 years there have been very real and recorded improvements in education and health, but it is still a massive lottery. Live in a small wealthy southern city and you will get European levels of public service, in a city of north... forget about it.

On pensions, there is encouragement there as well. It is often forgotten in the noise, but the Mensalão was primarily about vote buy to pass important pension reform. Plus Dilma stared down the public sector unions last year and won and she stated in a interview at the end of last year that tax harmonisation and reform was this year's battle.

It is going to be an interesting year.


Good infrastructure didn't save Europe from its economic policies from catching up with it, it can't save Brazil, (even in the 80's Brazil had relatively good infrastructure for a developing country at that time,)

BR-NZ in reply to Jintelo

I'm not sure you realise just how bad Brazil's infrastructure is... and the 80s Brazil did not have "relatively good infrastructure", the dictatorship did an appalling job while in power and the lost decade after they finally admitted how useless they were and quit was a direct result in General's failure to do anything other than delay Brazil's problems down the barrel of a gun.

Live United in reply to Jintelo

@ Jintelo

Your "good infrastructure didn't save Europe" comment is intriguing.

Firstly Europe is not "lost" as can be evidenced by the UK economy regaining the 5th biggest economy title from Brazil, even when "Europe is in crisis" as Brazilians have convinced themselves to feel good about themselves. Yes that's why there are something like 10 million Brazilians living in Europe (most of them illegally) and not the other way around! strange that eh!

Secondly and about the infrastructure, Brazil has only 0.5% of its roads covered with asphalt of concrete, yes less than 1% of its roads! The rest are dirt tracks... AND Brazil transports more by road than the USA and Russia combined.... because there are no train services from state to state... guess what, Brazil boasts of having 6 different track gauges making it impossible to have a national rail service... some great planning that was by the competing interests of the Coffee Barons.

Road deaths are the 8th highest in the world. While other countries (the USA and EU included) are building "smart roads" for driverless cars, Brazil´s answer to driverless cars is to kill all the drivers.

Then there is the enhancements roads bring, they connect people thereby increasing trade, competitiveness, access to health and education.

So name me 1 EU country with a lower GDP per capita than Brazil....

Yes Germany, UK, Ireland, Holland, Denmark etc etc all have 4 times higher GDP per capita than Brazil because they are focussed on the future, not skimming off the top of Infrastructure budgets and screwing their own people in the process.

And you read the Economist!!! Jeeez



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