Just four years after The Economist published a cover story entitled “Brazil Takes Off,” the newspaper took a second look at the reversal of fortune experienced by the South American nation. After highlighting the boom years of the 1990s and early 2000s, The Economist lays out a laundry list of what it believes is wrong with the economy in Brazil and offers several fixes.
Acknowledging that the Brazilian economy stabilized under President Fernando Henrique Cardoso in the mid-1990s and grew under President Luiz Inácio Lula da Silva in the early 2000s, the newspaper goes on to point out Brazil’s other successes. The economy grew by 7.5% in 2010 – its strongest growth in 25 years – after the global economic downturn in 2008. On the heels of such economic improvement, Brazil was awarded the 2014 World Cup and the 2016 Summer Olympics.
What Does The Economist Think Is Wrong?
So in the face of only 0.9% growth in 2012, what does The Economist think is wrong with Brazil’s economy? They blame Brazil’s burdensome tax code, high pensions, a bloated government, low investment in infrastructure, and policies that scare away investors.
According to The Economist, proliferating political parties with their own self-interests clog the political process. A complex tax code combined with a payroll tax that adds 58% to salaries makes it expensive to do business in the cities. A crumbling infrastructure with difficult to pass roads in the rural and farm areas makes it expensive to get products to market, reducing the margins for farmers. Yet, in spite of the difficulties faced by farmers, Brazil is the world’s third largest food exporter.
What Does The Economist Think Are the Solutions?
The Economist proposes that an assortment of reforms must take place in order for Brazil to stimulate growth and take better care of its infrastructure and its citizens. The newspaper suggests that Brazil start by reshaping public spending and reducing pensions.
Second, it must make it easier to invest and do business in Brazil. By exposing Brazilian firms to foreign competition, simplifying customs regulations, and reducing import tariffs, Brazil will have a more open economy that encourages investment and growth.
Third, The Economist urges political reform aimed at limiting waste at every level of government. One suggestion is to reduce the number of ministries, set a limit on the number of seats in Congress, and make politicians more accountable to the public.
President Dilma Rousseff certainly has her plate full. As The Economist points out, the remarkable downturn in Brazil’s economy was not created overnight. It has accumulated over generations. It’s up to the government to leverage the strengths of the country that include huge oil deposits, rich farmlands, and a growing middle class to get Brazil’s economy back on the right track.
