Politics Holding up Economic Growth in Brazil—Analyst

By Elisabeth Burgess
April 24, 2007

Event: Brazil: 100 Days of President Lula's Second Term
Featuring: Al Fishlow, Columbia University; Stan Gacek, AFL-CIO; and Lisa Schineller, Standard and Poor's.

WASHINGTON, DC—Brazil's desire to join Russia, China, and India as one of the world's fastest-growing economies is hampered by a lack of political leadership, Colombia University economist and Brazil specialist Al Fishlow said Tuesday.

"[Brazil] is a country where the politics don't provide leadership," Fishlow said at an Inter-American Dialogue panel discussion about the first 100 days of Luiz Inacio Lula da Silva’s second four-year term as president of Latin America’s largest economy.

Among many challenges, Fishlow said Brazil's Congress has much more work to do on tax reform and the state pension system. He projected the country will meet targets for economic growth of over 4 percent per year, but said that it will not grow more than 5 percent per year without also investing at a rate of 25 percent.

"The same national accounts that everyone is lauding for reducing the level of taxes-to-income showed an appalling lack of investment in Brazil, and I would say that that is the real problem," Fishlow declared. He said the country needs more investment in the agricultural west, and in railroad and port infrastructure. Lula's Growth Acceleration Program—announced earlier this year—is unlikely to generate enough investment, he said.

But Lisa Schineller, an analyst at ratings agency Standard & Poor's and a panelist at Tuesday’s event, had a more positive view of Brazil's political leadership.

She said Brazil has made "immense progress" in the last ten years, crediting former President Fernando Henrique Cardoso and Lula for keeping macroeconomic policy "in the broad sense moving forward in a very different way than in Brazil's past."

"I think that should not be underestimated in terms of leadership," said Schineller. "I also think it's important to be realistic [about] the pace one can expect in a democracy with extreme inequality and poverty issues, with also a multiparty system ... and given this system of intense vested interests that hits all parties, progress will be slow."

Brazil's ambassador to the United States, Antonio Patriota, said he was surprised to hear Fishlow comment "that politics in Brazil didn't provide leadership."

Brazil—part of an informal alliance with Russia, India, and China, known by the acronym BRIC—is expected to be one of the world's top economies in the next 40 years or so, said Patriota.

"If one looks at the politics of the other three BRICs, it's quite obvious that Brazil is a much more accomplished democracy. I don't think there's any question of that, whether you look at" China, Russia, or India, he stated.

Patriota said that a recent study of the BRIC countries indicates Brazil won't achieve the same growth levels as India and China, but "that this would still bring Brazil into the first six economies within the next 40 years or so."