Brazil Has Not Yet Found A Way to Reconcile Growth and Inclusion of The Poorest

Text on Brazil's economy in the last 200 years is part of the Frente e Verso series, which aims to discuss mistakes and successes in the country's trajectory over this period and indicate future perspectives

São Paulo

From a historical perspective, Brazil's post-Independence economic trajectory can be divided into three major periods: timid growth and decline in per capita income from 1822 to shortly after the turn of the 20th century; accelerated rates from that point to 1980; and the following four decades, to the present day, of crises and near stagnation, with the brief exception of the mid-2000s to the beginning of the last decade.

Initially, the imperial period (1822 to 1889, year of the Proclamation of the Republic) were be marked by serious debt crises and by an economy almost exclusively dependent on the production and export of coffee, with slave labor, officially abolished in 1888. After its independence, Brazil assumed debts estimated at 2 million pounds that Portugal owed to England.

In the following years, internal revolts (Farroupilha, Cabanagem, Sabinada) and wars in the Cisplatina province, present-day Uruguay (between 1825 and 1828), and Paraguay (1864 to 1870) led to new waves of indebtedness, especially with London.

Even trying to stabilize external accounts with surpluses in coffee exports (Brazil came to account for two thirds of the global supply at the turn of the 19th to the 20th century), the country ended up first reducing its debt services; then for failing to pay it.

With no international credit, domestic debt was chosen, a period known as encilhamento. Under the justification of stimulating the industrialization of the country, the then Minister of Finance, the first of the Republic, Rui Barbosa (1849-1923), adopted a policy of stimulus, but with lenient supervision, for the offer of private and public bonds that eventually led to strong currency issuance and, later, to inflation.

After the first wave of modernization in the early 20th century, the country continued to industrialize and rapidly migrated from the countryside to the city in a period of profound reforms and reorganization of the State, with dozens of bodies, laws and regulations adopted in the Getúlio Vargas administrations (1930s -1945 and 1951-1954). After the military dictatorship (1964-1985), Brazil went go through a new phase of industrialization, also with state intervention and protectionism, which led to the expansion of infrastructure and the creation of dozens of state-owned companies.

In part of the period, known as the economic miracle (1968-1973), GDP grew by 11%, on average. Between the 1960s and 1980s, the share of the urban population grew from 45% to 72%, accelerating productivity. Brazil has also increasingly resorted to borrowing in dollars to sustain the developmental drive. From the beginning of the dictatorship to the end of the "miracle," the foreign debt jumped from US$ 3.1 billion to US$ 12.5 billion and gained gigantic proportions until the end of the military regime, reaching US$ 96 billion in 1985.

Two years later, already in the New Republic, former President José Sarney (1985-1990) declared a moratorium on foreign debt, and Brazil plunged into a hyperinflationary crisis that only ended with the Real Plan, launched in 1994, under the Itamar government, Franco (1992-1994), and carried on by former President Fernando Henrique Cardoso (1995-2002). Despite the financial modernization and privatizations promoted by FHC, the economy remained closed to the currents of international trade, and the private sector remained protected from external competition and dependent on the State.

From the mid-2000s onwards, the country insisted on the state financing model for the economy. The so-called tax, financial and credit benefits to sectors and companies doubled in the Lula and Dilma Rousseff governments (2003-2016). Today, they are equivalent to almost 4.5% of GDP, or more than R$ 300 billion per year.

Despite the obstacles for Brazil to accelerate growth again —and the lack of consensus around a project different from historical patrimonialism and protectionism—, the country has made considerable social advances. Since 1940, the illiteracy rate among people over 15 years old has dropped from 56% to 6.6%; infant mortality, from 146 per thousand live births to 11.9. The average life expectancy at birth jumped from 45.5 years to 76.6 (before the pandemic). In addition to the universalization of health and education, even with questionable quality, the country also created focused and cheap social programs, such as Bolsa Família (at a cost of only 0.5% of GDP), now replaced by Auxílio Brasil. "Basically, Brazil has not yet managed to find a package that reconciles greater economic and social development," summarizes Samuel Pessôa, economist and columnist for Folha.

Translated by Kiratiana Freelon

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