Brazil: What Will A Second Term for Lula Look Like?

Source: Center for Economic and Policy Research

For Immediate Release: September 22, 2006

Contact: Mark Weisbrot, 202-746-7264
Dan Beeton, 202-256-6116 (cell)

WASHINGTON – The Center For Economic and Policy Research (CEPR) today released its issue brief, “Brazil’s Presidential Election: Background on Economic Issues”. The paper looks at the last four years of economic policies and results and considers what changes in economic policy might take place in the next few years.

"The big challenge for Brazil will be to restore reasonable economic growth, to bring to an end the 25-year economic growth failure that has plagued the country,” said economist Mark Weisbrot, Co-Director of CEPR and principal author of the report.

Brazil’s GDP per person has grown only 11 percent over the past 25 years, or less than one half percent annually. By comparison, from just 1960-1980 it grew by 123 percent. The paper notes that if Brazil had continued growing at its pre-1980 rate, which was nowhere near the fastest among developing countries, it would have European living standards today.

Per capita income has grown about 1.4 percent annually for the Luiz Inácio Lula da Silva (“Lula”) presidency, about the same as during the previous 8 years of Fernando Henrique Cardoso’s presidency. This was enough to match the expansion of the labor force, but not enough to make a dent in the country’s high unemployment rates.

“Of all the policies stifling growth in Brazil, the excessively high interest rates set by Brazil’s Central Bank are probably the most destructive,” Weisbrot noted. Short-term rates are currently set at 14.25 percent, as compared to 5.25 in the United States, despite the fact that the two countries have about the same rate of inflation (Brazil’s is slightly lower).

The report looks at monetary and exchange rate policy, the “Bolsa Familia” anti-poverty program and other policy measures implemented in recent years. The analysis indicates that achieving significant reductions in poverty and unemployment will be difficult or impossible without macroeconomic policy changes that can restore healthy rates of economic growth.