Folha de São Paulo (Brazil), August 31, 2011
Brazil’s economy is slowing, but the government is increasing its primary surplus by cutting spending, which could slow the economy more. In June, industrial production fell by 1.6 percent, and economic activity fell for the first time since 2008. Although monthly figures are erratic and don’t necessarily indicate any trend, the overall picture raises questions about whether government policy is appropriate in the face of the growing headwinds and risks in the global economy.
Don’t get me wrong: Brazil’s economic policy and results since Lula was elected in 2002 have been a huge improvement over the Cardoso administration. Cardoso, who was the object of much love and affection in Washington for having implemented the neoliberal policies of the “Washington consensus,” presided over an economic failure. The economy grew a mere 3.5 percent per person during his eight years in office. Lula’s record was vastly better, at 23.5 percent per capita growth; and with a 60 percent real increase in the minimum wage, and considerable reductions in unemployment and poverty, there really is no comparison. Dilma’s term is likely to see even better results.
But Brazil has a structural problem that is similar to one of our biggest problems in the United States: The financial sector is too big and too politically powerful. Since this sector does not have much interest in growth and development – it is much more obsessed with its own profits and minimizing inflation – its control over the Central Bank and macroeconomic policy keeps Brazil from achieving its potential. And the country’s potential is huge: from 1960-1980 Brazil’s economy grew by 123 percent per person. If Brazil had maintained this rate of growth, Brazilians would have European living standards today.
Inflation is currently falling in Brazil – it was 4 percent at an annualized rate over the last three months, as opposed to 7 percent for the past year. There is no reason – other than the narrow interests of Big Finance – to sacrifice any growth or employment to reduce inflation. The financial sector is also the major villain behind Brazil’s overvalued currency, which is hurting Brazil’s industry and manufacturing. The Central Bank targets inflation by raising the value of the real, thus cheapening imports. And even when the government tries to bring the currency down to a more competitive level, the financial sector’s trading in various derivatives prevents it from doing so.
For the years 2002-2011, Argentina has grown by 90 percent, Peru by 77 percent and Brazil by 43 percent. There is no reason that Brazil cannot have one of the fastest-growing economies in the region, or even the world.
In the last four years, Brazil’s financial sector has grown by about 50 percent, three times faster than the industrial sector. Salaries for top managers are now higher than in the United States. This is not only a huge waste of resources, but much more destructive because of the sector’s political influence.