Brazils future: as Brazil !

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Brazils future

Has Brazil blown it?

A stagnant economy, a bloated state and mass protests mean Dilma Rousseff must change course

Sep 28th 2013 | From the print edition

FOUR years ago this newspaper put on its cover a picture of the statue of Christ the Redeemer ascending like a rocket from Rio de Janeiros Corcovado mountain, under the rubric !ra"il takes off #http$%%www&economist&com%node%'()'(*+,.& /he economy, having stabilised under Fernando 0enri1ue Cardoso in the mid2(++3s, accelerated under 4ui" 5n6cio 4ula da 7ilva in the early '333s& 5t barely stumbled after the 4ehman collapse in '338 and in '3(3 grew by 9&):, its strongest performance in a 1uarter2 century& /o add to the magic, !ra"il was awarded both ne;t years football <orld Cup and the summer '3(= Olympics& On the strength of all that, 4ula persuaded voters in the same year to choose as president his technocratic prot>g>e, ?ilma Rousseff& 7ince then the country has come back down to earth with a bump& 5n '3(' the economy grew by 3&+:& 0undreds of thousands took to the streets in June in the biggest protests for a generation, complaining of high living costs, poor public services and the greed and corruption of politicians& @any have now lost faith in the idea that their country was headed for orbit and diagnosed Aust another voo de galinha #chicken flight-, as they dubbed previous short2lived economic spurts& /here are e;cuses for the deceleration& Bll emerging economies have slowed& 7ome of the impulses behind !ra"ils previous boomCthe pay2off from ending runaway inflation and opening up to trade, commodity price rises, big increases in credit and consumptionChave played themselves out& Bnd many of 4ulas policies, notably the Bolsa Famlia that helped lift ')m people out of poverty, were admirable&

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Brazils future: as Brazil !lo"n it# | $he %&onomist

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/he worlds most burdensome ta; code !ut !ra"il has done far too little to reform its government in the boom years& 5t is not alone in this$ 5ndia had a similar chance, and missed it& !ut !ra"ils public sector imposes a particularly heavy burden on its private sector, as our special report #http$%%www&economist&com%news%special2report%'()8===92having2come2tantalisingly2 close2taking2bra"il2has2stalled2helen2Aoyce2e;plains- e;plains& Companies face the worlds most burdensome ta; code, payroll ta;es add )8: to salaries and the government has got its spending priorities upside down& Compare pensions and infrastructure& /he former are absurdly generous& /he average !ra"ilian can look forward to a pension of 93: of final pay at )*& ?espite being a young country, !ra"il spends as big a share of national income on pensions as southern Durope, where the proportion of old people is three times as big& !y contrast, despite the countrys continental dimensions and lousy transport links, its spending on infrastructure is as skimpy as a string bikini& 5t spends Aust (&): of E?F on infrastructure, compared with a global average of ,&8:, even though its stock of infrastructure is valued at Aust (=: of E?F, compared with 9(: in other big economies& Rotten infrastructure loads unnecessary costs on businesses& 5n @ato Erosso a soyabean farmer spends '): of the value of his product getting it to a portG the proportion in 5owa is +:& /hese problems have accumulated over generations& !ut @s Rousseff has been unwilling or unable to tackle them, and has created new problems by interfering far more than the pragmatic 4ula& 7he has scared investors away from infrastructure proAects and undermined !ra"ils hard2won reputation for macroeconomic rectitude by publicly chivvying the Central !ank chief into slashing interest rates& Bs a result, rates are now having to rise more than they otherwise might to curb persistent inflation& Rather than admit to missing its fiscal targets, the government has resorted to creative accounting& Eross public debt has climbed to =3293: of E?F, depending on the definitionCand the markets do not trust @s Rousseff& Fortunately, !ra"il has great strengths& /hanks to its efficient and entrepreneurial farmers, it is the worlds third2biggest food e;porter& Dven if the government has made the process slower and costlier than it needed to be, !ra"il will be a big oil e;porter by '3'3& 5t has several manufacturing Aewels, and is developing a world2class research base in biotechnology, genetic sciences and deep2sea oil and gas technology& /he consumer brands that have grown along with the countrys e;panding middle class are ready to go abroad& ?espite the recent protests, it does not have the social or ethnic divisions that blight other emerging economies, such as 5ndia or /urkey&

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Brazils future: as Brazil !lo"n it# | $he %&onomist

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Bn own goal for ?ilma Fern6nde"H !ut if !ra"il is to recover its vim, it needs to rediscover an appetite for reform& <ith ta;es already taking ,=: of E?FCthe biggest proportion in the emerging world alongside Cristina Fern6nde"s chaotic BrgentinaCthe government cannot look to ta;payers for the e;tra money it must spend on health care, schools and transport to satisfy the protesters& 5nstead, it needs to reshape public spending, especially pensions& 7econd, it must make !ra"ilian business more competitive and encourage it to invest& /he way to do that is not, as the government believes, to protect firms, but to e;pose them to more foreign competition while moving far more swiftly to eliminate the self2inflicted obstacles they face at home& !ra"ils import tariffs remain high and its customs procedures are a catalogue of bloody2minded obstructionism& @ore dynamic 4atin Bmerican economies have forged networks of bilateral trade deals& !ra"il has hidden behind @ercosur, a regional block that has dwindled into a leftist talking2shop, and the moribund ?oha round of world2 trade talks& 5t needs to open up& /hird, !ra"il urgently needs political reform& /he proliferation of parties, whose only interest is pork and patronage, builds in huge waste at every level of government& One result is a cabinet with ,+ ministries& On paper, the solution is easy$ a threshold for seats in Congress and other changes to make legislators more accountable to voters& !ut getting those who

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Brazils future: Has Brazil blown it? | The !onomist

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benefit from the current system to agree to change it re1uires more political skill than @s Rousseff has shown& 5n a years time @s Rousseff faces an election in which she will seek a second four2year term& On her record so far, !ra"ils voters have little reason to give her one& !ut she has time to make a start on the reforms needed, by trimming red tape, merging ministries and curbing public spending& !ra"il is not doomed to flop$ if @s Rousseff puts her hand on the throttle there is still a chance that it could take off again&

From the print edition: Leaders

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