Even when they’re in trouble, Brazilians rarely lose their sense of humor. But in recent years, their joviality has often given way to political division everywhere from social media to the dinner table.
One familiar quip – that Brazil is the country of the future and always will be – has lost its levity as Luiz Inácio Lula da Silva begins his third presidential term. Lula previously led his country from 2003 to 2010. The president, who was sworn in again on Jan. 1, 2023, promised on the campaign trail that Brazil’s future can be like its past again: more prosperous and less polarized.
Having studied Brazil in our economic research, and having lived in the country for several years by birth or by choice, we argue that it will not be easy for Lula to fulfill his economic promises.
Unlike in his first two terms, when domestic and foreign markets helped the economy along, Lula now faces strong headwinds at home and abroad – and that means sound policies are even more important this time around.
Brazil shot up from the world’s 14th-largest economy in 2003 to the seventh-biggest in 2010, during a boom that largely coincided with Lula’s prior presidency. At the same time, the country’s poverty rate, which the World Bank today pegs at the share of the population living on less than US$3.65 a day, fell sharply, from 26% to 12%.
Brazil exports so many gallons of orange juice, bags of coffee, bushels of wheat and other commodities that it’s serving up the world’s breakfast. Global growth during those years boosted the demand for these commodities as well as for Brazil’s processed goods. Manufacturing exports fueled Brazil’s growth in the decade following the year 2000 for the first time, led by sales of products like steel, car parts and cars, and aircraft made by Embraer.
During these boom years, Lula ran a balanced government budget, held inflation low and kept the Brazilian real’s exchange rate with other currencies under control – macroeconomic policies that he maintained from his predecessor, Fernando Henrique Cardoso. Lula also bundled Cardoso’s popular anti-poverty programs into Bolsa Família, a successful conditional cash transfer program. To remain enrolled and receive the monetary benefits, low-income families had to get their children vaccinated against diseases, keep them in school and meet other requirements.
Cynthia Benedetto, Embraer’s chief financial officer, observed in 2011: “Since my childhood I heard that Brazil is the country of the future,” and then warned, “Now the future has arrived, and I start to fear that it is short.”
She was right. The good times didn’t last.
During the second decade of this century, the prices of many of the commodities that Brazil exports fell or even plummeted. The country experienced two of the worst recessions in its history. In the downturn that lasted from late 2014 to mid-2016, nearly 5 million Brazilians lost their jobs. After a sluggish recovery, the COVID-19 pandemic hit, and 10 million Brazilians became jobless in another big downturn.
Simone Tebet, the new economic planning minister who is in charge of coordinating spending, has several fiscal conservatives on her team.
Finance Minister Fernando Haddad, in contrast, has appointed undersecretaries known to invariably advocate for more spending. Plans for taxes and spending released to date set a budget surplus of 0.5% of GDP as the new government’s target, primarily financed with more tax collection.
Using budget projections by the International Monetary Fund, we consider those revenue projections overly optimistic.
To be sure, any new government deserves time to prove itself, especially under tough circumstances. But patience is rarer in Brazil than humor – and always has been.
Source : The Conversation