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taking into account the high level of capital mobility, the
rapid growth in foreign investment, market deregulation and,
in particular, increased flexibility of the rules governing
the contracting of labor. Amongst the reforms, the ending of
monopolies in areas such as oil and telecommunications has
been the most notable.
The
present government has been achieving success in relation to
the privatization program. The entire national iron and
steel sector is now in the hands of private enterprise,
together with the petrochemicals and fertilizers sector. The
electricity sector is highly attractive to investors and is
now sufficiently mature and solid to be transferred to the
private sector. It consists of major hydroelectric plants
and a good transmission and distribution system. The
electricity sector privatizations began with one of Brazil's
largest companies, Light, in Rio de Janeiro.
The
Brazilian population has increased more slowly since the mid
1970s and is starting to show a higher average age. Brazil's
welfare system is organized on the basis of the distribution
system by which contributions from active workers finance
the retirement of those no longer working. This system
becomes non-viable from a financial point of view when the
average age of the population increases. In Brazil the
problem is made worse by the fact that retirement is awarded
according to length of service (30 years for women and 35
for men) and includes several privileges for special
categories - teachers and judges, for example. In addition,
Social Welfare is a system that is very large and
centralized and which is subject to serious administrative
errors, corruption and a high rate of tax dodging. The
financial deficit of retirement is currently low but there
are indications that it could be potentially large in the
future. This area has also been going through a
restructuring process.
The
Brazilian economy has a high growth potential and a
considerable consumer market even taking account of income
distribution which, according to 1995 data and focusing on
just six of Brazil's nine metropolitan regions, has resulted
in the 20% better off in those regions receiving 63% of
income, whilst the 50% worst off get just 12%. According to
other indicators and research into world living conditions,
carried out by the UN in 1996, the average income of the
best off 10% of the population is around 30 times greater
than the average income of the 40% worst off. In other
countries, where income is more evenly distributed, the
better off earn on average ten times more than the worst
off.
Investment in the manufacture of cars, TVs and other
electronic equipment, cable TV, subscriber TV, beer and soft
drinks, cement and other products for the domestic market,
has been climbing rapidly since 1994 - which demonstrates
private sector expectations in relation to the good
performance of the economy and in particular, growth in the
domestic market which was so badly affected by the
instability that prevailed in the country since the mid
1980s.
On the
other hand, Brazil's stability and its low rate of inflation
depend, as in other Latin American countries, on the
rigidity of the nominal exchange rate, which is
approximately R$ 1 to one US dollar. The recovery of growth
in the Brazilian economy without the return of rampant
inflation depends, therefore, on a good performance by
exports. After the Real Plan, it could be said that the pace
of growth without inflation in the Brazilian economy has
come about as a result of the speed at which exports have
increased. The economy's present dilemma is how to increase
exports without devaluing the exchange rate.
The
long-term problems are of a different nature. Brazil has one
of the most diversified and complete industrial
infrastructures in Latin America and even in the entire
Southern Hemisphere. It has, therefore, enormous growth
potential taking into account experience, company culture
and the size of its market.
In
relation to agriculture, a similar type of observation may
be made. Agriculture has succeeded in occupying land that in
the past has been considered as being unproductive - the
Cerrado(AB8) (scrubland) for example - by means of the
refinement of varieties developed in Brazilian laboratories
and specially adapted to the region. It has also
demonstrated dynamism and initiative by introducing new
crops such as soya, sugar, oranges and other fruit, as well
as new varieties of coffee, Brazil's traditional product. In
terms of productivity and flexibility, Brazilian agriculture
is of high quality and led by farmers and businesspersons
who are very different from the stereotype of the old
colonel, which characterized Brazilian agriculture during
the first half of the 20th century.
Meanwhile, agrarian reform remains a major problem when
considering income distribution, the concentrated
distribution of land ownership and the exaggerated growth of
major Brazilian cities.
The most
relevant long-term issue relates to the anticipated results
of the new model of world growth. When applied to Brazil,
the results noted in the world economy since the early 1980s
indicate that the new model has generated economies that on
the one hand have a low rate of inflation but on the other,
have a slow rate of growth and high unemployment level.
For
countries like Brazil, which at the outset have a high level
of structural unemployment, a concentrated income
distribution combined with a low level of school attendance
and a low average income, the expectation of repeating this
performance pattern (low inflation and high unemployment)
represents a serious threat. More than that, it is a
non-viable alternative, both economically and politically.
This is
the real challenge facing Brazil - and it gets worse when we
remember that the country will be, as it has to be, firmly
implanted in the international financial markets. There are
no alternative policies available apart from major
investment in the social area and public investment in
infrastructure and technology.
The
marked financial imbalance found in the public sector in
Brazil is preventing these investments from being made in
the volume and time necessary to create a promising outlook
for the long-term situation. On the other hand, unlike in
other countries, the new life and political organization in
Brazil, with widespread freedom of expression and political
representation, cancel out the risk of the existence of
pockets of dissatisfaction or revolt that the nation's
difficult social position might suggest.
Perhaps
this is Brazil's most positive and promising feature. A
nation with an Iberian heritage and an authoritarian
culture, with a highly unstable political past, that holds
prosperity and liberty as its most important aspirations.
These features lead to the conclusion that Brazilian society
as well as its economy are going through a period of great
transformation that is both promising and yet difficult to
achieve. |
