Six Policy Areas for Brazil to Address

Six Policy Areas for Brazil to Address

Protests have recently erupted throughout Brazil, drawing over 250,000 people expressing their grievances towards the government and illustrating both the perils of a growing middle class during an economic slowdown and the strengths of democratic government. The protests shocked some foreign analysts as well as many in the Brazilian government.

President Dilma Rousseff has since seen a precipitous drop in her approval ratings, the most dramatic for any Brazilian leader since 1990, with some polls showing a 27 percent drop since the beginning of June. Rousseff, who faces reelection soon, is undoubtedly troubled by these poll numbers. Her favourability in Northeast Brazil, where her Workers Party traditionally does extremely well, dropped from 64 percent to just 40 percent in less than a month.

81 percent of Brazilians view the demonstrations positively, but such a precipitous drop in Rousseff’s favourability is still shocking. Initially slow to respond to protests and at first only offering political reform, Rousseff has since promised more detailed reforms, some of which align with protesters demands and concerns. While she has reached a truce with demonstrators, the situation in Brazil remains disconcerting.

Longstanding issues have clearly emerged in Brazil that require fixing. At stake is not just Rousseffs poll numbers and re-election prospects, but the ability for Brazil to fully emerge as a country with economic, political, and social stability and growth. While not intended to be a comprehensive policy list, Brazil still needs to address six key areas:

1. Address High Interest Rates

High interest rates have played an important role in toppling numerous governments throughout the world before. While Brazil is in no such danger, the high interest rates are proving to be devastating. An average return of ten percent encourages significant foreign investment. However, the consequences have appreciated the Brazilian real to one of the most expensive currencies in the world. The cost of the real hurts Brazilian exports and undercuts the country’s competitiveness.

Moreover, high interest rates are a key factor in the growing middle class discontent. With the cost of goods rising, the decision to raise bus fares was all it took for the final straw to break and demonstrations to begin. High state spending has historically contributed to periods of inflation in Brazil but some of that spending is not being spent in an economically beneficial manner.

2. Improve Infrastructure

As recent collapses of soccer stadiums have shown, Brazil’s infrastructure is far from adequate given its global ambitions. Brazil spends only 2 percent of its GDP on infrastructure, which is lower than the 5 percent most comparable markets spend and certainly far less than the 10 percent averaged by China.

Poor infrastructure has also worked to discourage foreign investment in some instances, where companies have suffered significant losses in transporting goods. Dilma Rousseff has recently pledged 23 billion towards transportation, an encouraging development. Without spending more of its GDP on infrastructure and perhaps less on costly social programs, Brazil will find it difficult to sustain economic growth and to continue to encourage the foreign investors rightfully attracted to Brazil.

3. Remove Protectionist Policies

Brazil has long had a protectionist economy. Indeed, in a recent trip to Brazil, U.S. Vice President Joe Biden sought to encourage Brazil in his remarks to break with its protectionist tendencies. The trade share of its GDP sits at around 20 percent, which places it once again at the lowest of all the emerging market countries. Increased competition can also work to lower the Brazilian real and stimulate manufacturing.

4. Improve Education and Research and Development

Brazil’s domestic investment has been poor compared to its growth rate and pales in comparison to other emerging market countries such as China. Poor investment in education has resulted in a bevy of unskilled workers and Brazil’s rapid growth has led to many companies having to hire unqualified workers. Brazil’s university system, while improving, is still far from where it needs to be. The country currently has a shortage of engineers and other technical workers, further slowing Brazil’s economy. In order to be a global power, Brazil must invest more in education and in research and development in order to further its reach in the globalized economy.

5. Simplify and Change the Tax Code

Brazil has funded its expanding social safety net through dramatic tax increases. Much of the recent frustration revolves around the sentiment that such high taxes have failed to transfer benefits towards much of the Brazilian populace. In addition to being overly complicated, hindering investment and growth, the tax rate is enormous. It now equates to 38 percent of the GDP, which makes it the largest share out of all of the emerging market countries.

6. Improve Governmental Efficiency

Rousseff has been right to discuss the need for political reform. None of the above list will work without improvements in governmental efficiency. This also includes the need for the government to lessen Brazil’s social welfare spending, which although it has contributed both to Brazilian economic growth and a corresponding growth in its middle class, must be reduced to make way for investments and long-term growth. This will be no easy political task, particularly for someone who has experienced a dramatic drop in the polls. But as the protesters have made clear, it is not something which Brazil can afford to delay.

Categories: Latin America, Politics

About Author

Sean Durns

Sean Durns worked as a research assistant to a former high ranking Pentagon official and the Director of National Security Strategies at a DC based think tank. His analysis has been referenced by a variety of media outlets including The Wall Street Journal, Roubini’s EconoMonitor, OilPrice, and many more. He holds a M.Sc. in History of International Relations from the London School of Economics where he focused on US foreign policy, security studies, and energy security.