HSC ECO CASE STUDY - BRAZIL

Introduction

• Good

  • 2000s fastest growing (commodity boom, increased trade values)

  • 10th largest eco

  • significant progress in eco dep

  • globalisation brings major success

• Bad

  • Decade to 2025 worst performing in G20 (reversal in fortunes)

  • 2014 commodity prices slumped

  • Corruption

  • Mismanagement of COVID

  • Undone by major failures

Eco performance

• Social and eco progress

  • GNI classified as upper middle Y eco

  • Life expectancy increased 63 → 76

  • High inequality but improved due to eco growth and gov

    • Family Fund Program - cash transfers, conditional (extreme poverty 17% → 3.8%)

    • Brazil without hunger plan - food insecurity

• Eco recessions

  • 2010s stagflation high inflation and unemployment

  • 2014 recession close to depression

    • Nature - Major commodity exporter, unprepared, structural problems

    • Gov - Corruption - scandal major state controlled oil company, policies failed

    • People - Lose confidence in budget problems, downgrading sovereign debt by rating agencies

  • Good

    • Financial markets - floating x rate, banking reg, FI inflows

• Environmental challenges

  • dependence on natural resources

  • International attention due to Amazon

  • Contentious president broke laws, support forestry clearing, motorway through Amazon

  • Restoring president

  • Water pollution → poor sanitation, public health

  • Biofuels

Influence of globalisation

• Influence of trade

  • Rapid growth

  • Commodity prices, narrow trade - iron ore, soybeans, oil

• Influence of external accounts

  • CAD, foreign debt, progress

• Influence of financial markets

  • Shocks, IMF emergency loan on US$30b successful

Response to globalisation

• Approach different from Asian tiger eco

  • Cautious, self-sufficiency, political environmental slow progress

• Increased openness to FI

  • Eco growth driven by FI

  • Measures to attract foreign investors (reforms, deregulation, privatisation) → TNCs heavy invest

  • Brazil company invest in other countries

• Eco model less export focussed but changing

  • Before 1990s - slow liberalising trade, tariffs in place

  • 1990s - outward oriented, tariffs 32% → 8%, eco integrated increased 15% GDP → 34%

  • Recent years - increased trade barriers e.g. 25% tariff on steel imports but to combat inflation 10% tariff cut, US impose tariff 50% due to closer relationship with China

• Role in global eco

  • BRICS forum 11 eco

  • Increased regional integration e.g. Mercosur bloc 1995 Latin American nations

• Currency reserves helped financial markets

  • Large foreign reserves to cushion from instability 11th largest US$341b 2025

Recent policy development

• Macroeconomic policy

  • Fiscal policy - restore eco growth and Y → increase spending → expansionary stance

    • Budget issue - 85% fixed expenditure and little discretionary funding

    • Public debt (pension reform)

    • Fiscal Responsibility Law - reduce debt, target primary fiscal surplus, spending cap

  • Monetary policy - high inflation → increase rate → contractionary stance

  • Pull in opposite direction

• Microeconomic policy

  • Pension reform - improve workforce participation

  • Labour productivity

  • Young population poor edu

  • Gov itself

  • Overhaul of tax system