BRAZIL was supposed to be an emerging power like Russia, India, and China
In the early 2000s economist, Jim O’Neill created the term BRIC referring to Brazil, Russia, India, and China, which, according to O’Neill, would dominate the world economy by 2050, thanks to their huge population and territory, natural resources, and high economic growth. For example, brazil has a population of 210 million inhabitants, is the fifth largest country in the world, and is one of the main exporters of food, minerals, and metals. It also has a diversified industry. It is the largest exporter of coffee and sugar in the world.
It also exports automobiles weapons cell phones, among others. Even a Brazilian company Embraer is the third largest aircraft manufacturer in the world. On the other hand, in 2014 it hosted the world cup and in 2016 Rio de Janeiro hosted the Olympic games for the first time in South America.
Therefore, with those achievements and that potential it showed a decade ago, brazil would be expected to reflect greater welfare for its inhabitants. However, unemployment for 2019 before the pandemic was almost 12. 25 of the population was still in poverty and by 2017 it was still a low per capita income country in Latin America it had a similar level to Colombia, from which it can be deduced that brazil is not that emerging economic power compared to the past with China or India.
Nor does it have the geopolitical influence of before so the questions to address are these: what originated the high economic growth at the beginning of the 21st century?
What factors caused the end of the supposed economic miracle, and why has it been so difficult to overcome the economic and social problems in a country with so much potential in 2006, brazil discovered one of the world’s largest oil fields in the Atlantic in recent years, the president, at the time, Lula da silva considered the discovery as a winning lottery ticket to be managed by the semi-state-owned company Petrobras during Lula da silva’s two presidential terms between 2003 and 2010 commodity and food prices experienced very rapid growth during those years.
The economy grew at an average annual rate of four percent. The country was in boom times, which allowed him to create social programs such as one called bolsa familia, which consisted of making money transfers to needy families.
To eliminate extreme poverty in brazil, the program started benefiting 16 million people. 10 years later, the transfers were directed to 55 million Brazilians because of these social programs Lula enjoyed high popularity, but there is a law in economics that sooner or later takes its toll. The law of scarcity is a principle that talks about a limited amount of resources versus an unlimited amount of
wants when a country commits extraordinary resources as if they were permanent and will have a serious problem when it stops receiving that extra income, in other words, financing social programs based on international commodities and oil prices is not sustainable and indeed, as with most emerging economies, the economic problems began with a sharp drop in mineral and food prices in 2011,
just as the administration of Dilma Rousseff Lula da silva’s successor began during the six years of Dilma Rousseff’s presidency, economic growth was only 0.43 on average and by 2015. 71 percent of Brazilians rejected the president’s management.
From this, it can be concluded that Lula enjoyed the highest popularity, partly because the boom in international commodity prices withstood all kinds of policies, but when prices fell, the economy stopped growing. That might be the most reasonable explanation because Dilma Rousseff is from the same political party and ideology as Lula.
So it is not that there was a radical change in policies. The windfall had simply dried up. It is like the story of athletes who earn very high salaries for five years and spend at that level without investing or saving and when they retire at the age of 35. They have financial difficulties that happened in brazil and other Latin American countries.
Venezuela was the most affected because its economy ended up depending almost entirely on oil revenues. Brazil, as we mentioned at least, had a much more diversified industry but brazil for more than a decade increased public spending sharply and as revenues decreased, a fiscal deficit was created which, by 2015 the worst year, reached 7.8 percent the highest among OECD countries and the alternatives to cover that deficit are increase, taxes, print money, cut spending or increase debt.
Brazil opted for the latter. Central government debt exceeded 70 percent of GDP in 2016 and was approaching 90 in 2019 very high for a developing country, which is not so cheap to get into debt, because, amid instability, the risk rating agencies removed its investment grade. In addition, the unemployment rate went from 6.6 in 2014 to 12.8 percent. In 2017., economic growth was negative for two consecutive years, the worst economic crisis.
Since the 80s to worsen the country’s outlook, the corruption scandal involving Petrobras, the majority state-owned oil company is probably the largest corruption case in brazil’s recent history, and this undoubtedly negatively affected the country in multiple aspects. In early 2015, Brazilians became aware that some Petrobras executives had been awarding juicy government contracts to private individuals in exchange for large sums of money.
It is estimated that around 2.7 billion dollars were siphoned off 32 members of congress belonging to Lula da Silva and Dilma Rousseff’s political party were under investigation for accepting bribes. Construction, tycoons, and federal legislators were also involved because of this former president Lula,
who left office in 2010 and was sentenced to 12 years in prison for corruption and Dilma Rousseff was impeached in 2016 by congress due to irregularities in the handling of budgets and for having manipulated public accounts to hide the true size of the budget deficit, so this political instability, combined with an economic recession, greatly complicated brazil’s recovery, but other underlying reasons make it even more difficult to solve the country’s economic and social problems.
As it turns out, the 1988 constitution made the transition from a military regime to a democratic one but included as many social rights as its drafters wanted. As a result, 90 percent of the federal budget is protected by the constitution.
which leaves very little room to maneuver. For example, constitutionally protected pensions in brazil absorb 12 percent of GDP, a higher proportion than what Germany, Japan, Canada, and the united kingdom countries where the population is older, pay in pensions in brazil.
women used to retire at 50 and men at 55 10 years earlier than the OECD average in 2019 president hair bolsonaro managed to gain support to test the necessary reform to the pension system, which would save more than 200 billion dollars in a decade.
This was a big step to start cleaning up public finances. However, spending to combat the effects of the pandemic will overshadow the savings from the reform on the other hand, according to the index of economic freedom.
which takes into account property rights, tax burden, government spending, ease of doing business, and free trade, among others, brazil ranked 143rd out of 178 countries, which is at the level of Cameroon or Afghanistan. India, China, and Russia are better placed than South American countries.
Therefore, it is not only a matter of public finances and corruption that distanced brazil from the group of those emerging powers that would dominate the world economy in 2050.