Brazil – a country of the future as usual?

May 24th, 2016 by Hubert Fromlet, Kalmar

10-15 years ago, many analysts were hoping that Brazil finally was about to establish itself on the right track for more sustainability of economic growth.

Since 2001, the so-called BRIC markets (Brazil, Russia, India, China) received increasing attention by (international) investors, mainly based on good growth expectations for all four countries – despite the fact that they clearly had different fundamental preconditions. In the past few years, however, Brazil’s economy was more and more disappointing.

Having dealt with Brazil for quite some years, I had my doubts about Brazil ‘s economic growth prospects already around 2005 or so, i. e. during the latter part of the first Lula regime which altogether with the second term had a number of promising years between 2003 and 2010 all the same.

Unfortunately, Lula’s successor Dilma Rousseff never got on the right track with all necessary reforms. Real structural progress was not noted in the first 5 1/2 years of her presidency which in the past two years was determined by power conservation without major future-oriented changes, accompanied by a GDP decline of 8 percent in the past 24 months (however, also caused by declining global commodity prices).

No wonder that markets reacted positively when Rousseff recently was suspended from office the other day, now facing an impeachment. Brazil’s currently acting president Michel Temer on the other hand seems to be quite impopular already now and hardly able to win direct presidential elections, particularly if he really will implement tough measures against Brazil’s rapidly rising government debt. Sensitive areas such as labor markets, social benefits and pensions could be hit by possibly coming austerity measures.

Sorry to say: my long-time lasting experience has been confirmed again: Brazil remains unable to achieve sustained good economic growth. It is really an “up- and-down economy” – with variable periods of ups and downs.

This distorting phenomenon will not be wiped out before Brazil really can manage far-reaching and continuous reforms regarding a broad and good human capital formation, better institutions and a fairer distribution of income – accompanied by much more effective and future-oriented political leaders all over the country.

This is what both experience and economic research tells us.

In my early days as an economist, Brazil was often introduced as a country of the future. It still is! Forever?

Hubert Fromlet
Senior Professor of International Economics, Linnaeus University
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