1. AN OVERVIEW OF THE BRAZILIAN ECONOMY Bruno De Conti University of Campinas – Brazil RUDN – Moscow

2. Outline Historical overview Agricultural export model (Before 1930) Developmentalist period (1930-80) The lost decade (1980-90) Liberal period (1990-2002) Growth and income distribution (2003-2013) Recession + Austerity (2014/15-...) Economic indicators Growth Social policy and income distribution Current context Some questions

3. Historical overview Until 1930 agricultural export model 1930-1980 Developmentalist period 1980-1990 “Lost decade” 1990-2002 Liberal period 2003-2013 Growth and income distribution 2014/15-… Recession + Austerity Historically, Brazil is one of the most unequal societies in the world. Roots on colonial heritage, slavery, concentration of land and wealth. Before 1930 economic activity was essentially oriented toward the external market. “Pau-Brasil” Gold Sugar cane Rubber Coffee International division of labour Source: Teixeira, Luís. Map from 1574

4. Historical overview Until 1930 agricultural export model 1930-1980 Developmentalist period 1980-1990 “Lost decade” 1990-2002 Liberal period 2003-2013 Growth and income distribution 2014/15-… Recession + Austerity Economic diversification Industrial development (durable goods, machinery, automobiles) Import substitution model Creation of public companies in strategic sectors, and public banks. Military dictatorship (1964-85): high economic growth and structural change, but income concentration and wage repression. A socially unfair, but highly dynamic model. A “Developmentalist State”, but far from a “Welfare” one.

5. Historical overview Until 1930 agricultural export model 1930-1980 Developmentalist period 1980-1990 “Lost decade” 1990-2002 Liberal period 2003-2013 Growth and income distribution 2014/15-… Recession + Austerity Latin America debt crisis Low and unstable economic growth Hyperinflation Worsening of social conditions Re-democratization and 1988 constitution: very progressive in terms of social rights

6. Historical overview Until 1930 agricultural export model 1930-1980 Developmentalist period 1980-1990 “Lost decade” 1990-2002 Liberal period 2003-2013 Growth and income distribution 2014/15-… Recession + Austerity “Washington Consensus Reforms”: trade liberalization and financial deregulation, privatization Real Plan: price stabilization 1999: currency crisis. Crisis of the liberal strategy in the early 2000s, shift in the power coalition: the Lula/Dilma period (2003-…)

7. Historical overview Until 1930 agricultural export model 1930-1980 Developmentalist period 1980-1990 “Lost decade” 1990-2002 Liberal period 2003-2013 Growth and income distribution 2014/15-… Recession + Austerity A new economic model? Back to a developmentalist State? Major changes: active role of State, industrial policies, public investment, banks and state companies Aggressive Social policies: mainly income transfers, minimum wage and housing program A “left wing gradual reform” without an open conflict with high income classes

8. Inflation rate 1993: 2477.2% 1994: 916.5 Inflation rate: Consumer index price Source: IBGE – Instituto Brasileiro de Geografia e Estatística

9. Economic Growth GDP growth (in real terms) Source: IBGE – Instituto Brasileiro de Geografia e Estatística

10. An important domestic market

11. Credit market expansion Source: IBGE – Instituto Brasileiro de Geografia e Estatística

12. Social policy and income distribution: “bolsa família”

13. Social policy and income distribution: minimum wage Minimum wage rule  ΔGDP (two years before) + inflation (previous year) Fonte: Elaboração própria, com dados do IPEA.

14. Unemployment rate Unemployment rate (%) Source: IBGE – Instituto Brasileiro de Geografia e Estatística

15. Income concentration is decreasing (Gini Index)…

17. … and also poverty levels Extreme poverty, based in necessary calories (number of persons) Source: IBGE – Instituto Brasileiro de Geografia e Estatística

18. November 2009

22. September 2013

23. June 2013 mass demonstrations Public services Corruption 1)Economic Growth did not sustain after the 2008 world crisis 2)Income distribution is not enough 3)Failure of the private sector and the public sector on providing urban services, massive education and health services

24. 2014 GDP growth: 0,1% Inflation rate: 6,41% Basic interest rate: 11,75% Tough election race

25. Source: O Globo, 25. October 2014 vote intentions Ibope, last pre-election poll

26. 2015 Austerity => huge budget constraints => Recession GDP growth forecast => -2% Unemployment rate has gone from 4.8% (Jun/14) to 8.4% (Aug/15) Real average wage: 2.4% in one year 2015 demonstrations: Right-wing: Elections “Third round” => Impeachment Left-wing: “Electoral fraud”

27. Some questions... Can Brazil return to growth? Infrastructure investments Room for more income distribution Room for more credit The current economic model has attained its limit? Failures in Lula’s governments are now emerging? Failures in Dilma’s first government? The international crisis is the main responsible for the current economic situation? Austericide?

28. Thank you ! brunodeconti@eco.unicamp.br

29. The economic debate in the media 3 groups in the economic/political debate: 1. Financial sector agenda “too much state intervention” Wage and labour market deregulation Financial sector deregulation Pessimistic view 2. Industrial sector agenda Wage and labour market deregulation Role of the State: industrial policy and active macroeconomic policy are welcome, but taxes are too high. Productivity 3. Worker´s agenda Mantain the minimum wage rule. Active role of the State in providing public goods and services

30. Why Brazil is so expensive? Exchange rate Tax system Indirect taxes Income inequality (which Brazil is expensive?)

31. Inflation targetting

32. Interest rates

34. Trade balance

35. Public debt