In order to understand Brazil we have to look at its history and the effect of colonization and its long term concequences1))as usual he was searching for India and end up in Brazil in the northeast setting up tTrading posts B)temperate climate with low settler mortality =institutions that guarentee equality of economic and political rights(USA and Canada).tropical climate with high settler mortality institutions that benefit settlers at the expense of natives and african slaves.2)So when brazil became independent it continued the inherited inequality which lead to lower investment in education and infrastructure hence lower rates of growth . 3)From northeast(Bahia) to southeast(RIO) decline of the northeast creating new inequalities between regions.Still the land belonged to white southerns and europeans and the blacks and other immigrants suffered from lack of opportunities and we have the creation of favelas which till this day are one of the major obstacles of the growth of brazil4)Vargas reduced the power of the elite and created a class of underprivileged workers with strong rules of entry or exit of employment,which eventually lead to the formation of small businesses operating out of the formal economy. 5)Very high inflation6)BrazilianMIRACLE:forced savings ,liberalization of financial markets,subsidized loans to domestic industry……growth of 10%.But even though it started well it ended in total disaster .Excesive borrowing lead to default in 1982 which triggered financial crisis the fall of the military and in 7)1985 lula was the president of the workers party and 8)Vote became mandatory9)high inflation ,deficits,debts, 35% of the population poor10))First as a minister and later as president he is credited to have decreased the inflation from 2500% to 16%,privatized state owned companies and reduced poverty to 28%
Brazil is A)The market is GOVERNED by B) and C)There is high corruption 2 directions on IP policy. Although the federal government has pursued a hard line in public against IP rights, "a quiet, little-noticed revolution has been going on the last 2 decadesLow rank on all three indicators
A)Reduced inflation A)and B) made securities atractive to investors C)S&P AND FITCH increased brazil from B+TO BB D)Increased the retirement age A unified bloc with leading role in doha round of trade negotiations and beyondMercosur increase free trade in south americaOn the other hand it took a harder approach with usa D) With the rise of china brasil increase its exports
A)Improved purchasing power and decreased the burden of social security programsB)And C) Income for life D)Education became accessible to everyone
Brazil 6th largest economy ->Centre for Economics and business Research (CEBR) PPP 11000 vs. 8,810 in 2006Privitization Airports: prepare for world cupMonetary tightening: overnight intervention interest rate went up from 8.75% march 2011 10.5% now. Social investment:Improved pension social security benefitsGrowth Acceleration ProgramReversed stimulus created rising inflation and consumer-credit growthGovernment allocation of resources to the National Bank for Economic and Social DevelopmentGDP 2006: 1.08 Trillion10.3% unemployment in 2006
Robert AssuncaoDimitrios(James) Barlos Derek DeRosa Rossana Ferrara Jonathan Lee Jennifer Meekel
AGENDA•The BRIC• BRIC comparison• Brazil Background• Political Economy in Brazil: Lula 1st• Our Recommendations• Update: since 2006
BRIC: BRAZIL, RUSSIA, INDIA AND CHINAAcronym introduced in 2001 by Jim O’Neill (Goldman Sachs):•Biggest and fastest growing emerging markets• Global Capitalism• 40% of the world population• Potential Alliance• Combined GDP of $15.435 trillions
According to Goldman Sachs by 2050 the combined BRIC economies could eclipse the combined economies of the current richest countries in the world.The ten largest economies in the world in 2050, measured in GDP nominal (billions of USD)
BRIC COMPARISON: 2006 GDP 2682 3000• Brazil: $948 Billion• Russia: $982 Billion 2500• India: $909 Billion• China: $2682 Billion 2000 1500 948 982 909 1000 500 0 Brazil Russia India China
BRIC COMPARISON: GDP GROWTH (1990-2004)• Brazil: 2.5% 9.0%• Russia: -0.9% 9.0%• India: 5.7% 8.0% 5.7%• China: 9% 7.0% 6.0% 5.0% 4.0% 2.5% 3.0% 2.0% -0.9% 1.0% 0.0% -1.0% Brazil Russia India China
BRIC COMPARISON: GROWTH DRIVERS• Brazil: Agriculture, forestry & fisheries and the mining & manufacturing• Russia: Natural resources such as petroleum and natural gas• India: Services (mainly IT-related)• China: Gradual shift toward services, Mining & Manufacturing
BRIC COMPARISON: ECONOMIC DEREGULATION• Brazil: Privatization, Expansion of Trade, Opening of Markets• Russia: State owned enterprises local private enterprises and foreign enterprises• India: Private sector’s share in gross fixed capital formation expanding• China: Non-public enterprises share of mining & manufacturing and export sectors rising
BRIC COMPARISON: GINI COEFFICENT 0.5• Brazil: 0.5 0.5• Russia: 0.3 0.45 0.4• India: 0.32 0.4 0.3 0.32• China: 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 Brazil Russia India China
BRAZIL:BACKGROUND• 1500:Pedro Alvares Cabral reaches the coast A)Disease:Smallpox ,Malaria,Yellow fever B)Type of institutional setting• 1822:Prince Pedro constitutional monarchy• 1889:rebellion establishes republic• 1930:Revolution and dictatorship under Vargas• 1945:Return to democracy• 1964:Military coup• 1985:Return to democracy and the emergence of Lula• 1987:Constitutional Congress• 1989:Collor• 1992:Cardoso and the Real Plan
MODERN BRAZIL:STRUCTURE•Federal presidential constitutional republic•Mixed economy•Civil law•Property Rights and Corruption (Index less than 4)•Intellectual Property (The Two Faces of IntellectualProperty in Brazil)•Determinants of Economic Development A)PPP B)GNI C)HDI
BRAZIL UNDER LULA• MACROECONOMIC STABILITY 2002-2006 A) Higher interest rates B) Improved corporate governance standards C) Budget Surplus D) Pension reform bill• TRADE 2002-2006 A) Creation of G-20 B) Strengthen of MERCOSUR C) FTAA negotiations D) Strong demand from China
LULA VS INEQUALITY• REDUCTION OF POVERTY A) Increase of minimum wage B) Noncontributory pension program C) Benefits for disabled D) School Grant
INEQUALITYPROS:• Crime reduction • Political, social, economic risk• Increased social mobility• Improved educationCONS:• Growth • India and ChinaOPINION:• Inequality focus important but not a priority • Too much risk
BRAZIL COST• Brazil Cost: Cost of the inefficiencies of Brazil’s economy • High Tax burden • Overvalued exchange rate • High interest rates • Red tape • Poor Infrastructure
EVALUATING LULA• GRADE: B+ Globally • Private consumption high • GDP up • Real GDP growth • Education quantity vs. quality • Wealth redistributed • Productivity remained the same even though minimum wage increased • Rating agencies: B+ BB
S Strengths •Only BRIC in the Americas •Favorable climate •Strong agriculture and mining •Population less than 1/5 of China and India •Fossil fuel independent •Democracy
W Weaknesses •Historically slower growing BRIC nation •Highest Gini coefficient of BRIC nations •Unequal land distribution •High crime rate areas •Democratic & bureaucratic inefficiencies (Brazil Cost) •Large public sector and high interest rates •Lack of education of the lower class
OpportunitiesO •Recently discovered oil reserves •Demand for exports; especially from China •Shift to a net-creditor •Attractiveness for FDI •Future educated Brazillians
T Threats •Organized crime •Potential political uprising or unrest •Fluctuating demand for commodities •Political corruption •Low social mobility •Least spent in primary and secondary education •Most spent on higher education
RECOMMENDATIONFree market policies that invest in Brazil’sculture, people and natural resources, will fosterlong-run economic growth and the opportunity forevery citizen to prosper.1. Macroeconomic Stability2. Education Development3. Legal System Reform4. Foreign Direct Investment5. Innovation and Entrepreneurship
MACROECONOMIC STABILITYAVOID ECONOMIC SHOCKS BY ENACTING POLICIESTHAT WILL MAINTAIN STABILITY AND CONTINUE GROWTH Fiscal Policy • Reduce Debt/GDP ratio. • Government investment, not government spending. • Lower corporate tax rates. Monetary Policy • Independent and powerful central bank. • Manage money supply and interest rates to target inflation. • Quick and efficient foreign exchange intervention to stabilize exchange rate.
EDUCATIONDEVELOPMENTAN EDUCATED POPULATION IS AMORE PRODUCTIVE POPULATION.• Invest in new education facilities.• Hire and train the very best educators and public school officials.• Update curriculum with the latest methods and technology to foster a better learning environment.• Teach financial literacy to encourage savings and investment at an early age.
LEGAL SYSTEM REFORMHIGH LEVELS OF CORRUPTION REDUCEFOREIGN DIRECT INVESTMENT,THE LEVEL OF INTERNATIONALTRADE AND THE ECONOMIC GROWTH RATE.Reduce Violence, Crime and Corruption• Increase the police force to enforce the law and limit civil disorder.• Provide education and employment opportunities for less fortunate individuals.Protect Property Rights from Private and Public Action• Increase investor confidence by strictly enforcing and adhering to higher standards.
FOREIGN DIRECT INVESTMENTPROVIDES AN INFLOW OF FOREIGNCAPITAL, WHICH INCREASES THE TRANSFER OFSKILLS, TECHNOLOGY AND JOB OPPORTUNITIES.Improve Infrastructure• Roads, bridges, utilities and public services.Lower Barriers to Entry• Simplify the process to invest in Brazil.Provide Corporate Incentives• Lower corporate tax and income tax rates.• Develop a tax holiday program.Natural Resources• Protect Brazil’s precious assets.
INNOVATION & ENTREPRENEUSHIPTHE GROWTH ENGINE FOR NEW PRODUCTS,BUSINESSES, MANAGEMENT PRACTICES AND MARKETS. Deregulation • Remove legal restrictions. • Simplify the process and ease of starting a business. Privatization • Reduce the amount of State Owned Enterprises. • Encourage competition among private businesses.
UPDATE: Since 2006Lula (second term 2006-2010)• Social Investment• Reversed stimulus measures in 2010• Monetary tightening in 2010- 2011• $11,000 PPP in 2010
UPDATE: Since 2006DilmaRousseff (2011-Present)• Bus Rapid Transport project• My Home, My Life• Continual increase to minimum monthly wage• Privatization• Expectations of continued deregulation• Brazil above UK (6th largest economy)• Currently: $2.08 Trillion GDP and 4.7% unemployment