Reports Praise Brazil for Past Achievements But Fault Current Policies

By James Rodriguez | IDN-InDepthNews Analysis

RIO DE JANEIRO (IDN) – While praising Brazil for the remarkable social and economic progress achieved in the past two decades, two new reports have faulted this largest country in both South America and the Latin American region for losing its macroeconomic credibility.

Much to the credit of government policies, 25 million people have been lifted out of poverty in Brazil in only one decade. Inequality has been decreasing, though from high levels, as a result of the incomes of the poorest 10% having increased at three times the rate of the richest 10% since 2003.

Also, over the past two decades, life expectancy has increased by six years while the average time spent in education has increased from six to nine years. “In fact, even the present cloud of corruption scandals may have a silver lining as recent investigations and judicial action demonstrate how much institutions have been strengthened and how justice is working,” declared Angel Gurría, Secretary-General of the Organisation for Economic Co-operation and Development (OECD), which is working with over 100 countries.

Addressing a gathering in Brasilia on November 4, Gurria said, indeed, it is because the country has advanced very far and very quickly that citizens’ expectations are higher than ever. “Regaining citizens’ trust, and meeting their legitimate expectations, will require putting Brazil back on a stronger, fairer, greener and more sustainable growth trajectory,” he added.

Gurría presented the Economic Survey of Brazil and the Environmental Performance Review of Brazil in Brasilia during meetings with Brazil’s Finance Minister Joaquim Levy and Environment Minister Izabella Teixeira. This followed the launch on November 3 of the new OECD-Brazil Programme of Work, which seeks to further strengthen cooperation in various policy areas.

According to the Economic Survey, Brazil is at a critical moment, as the fiscal situation is challenging, inflation is high and previous tailwinds from high commodity prices are fading.

All of this is putting pressure on the wider economy, which is projected to contract by 3.1% this year and a further 1.2% in 2016. The Survey recommends Brazil move ahead with the planned fiscal adjustment, which will be critical for strengthening public finances, restoring market confidence and preparing for intense population ageing.

The OECD survey also wants Brazil to rein in the expansion of public expenditures, notably by making public spending more effective and reforming the pension system. Improved targeting of social benefits – spending more on the poor, and less on benefits for those who have successfully joined the middle class – could simultaneously reduce inequality while strengthening the public finances, according to the survey-

“Macroeconomic stability has been a crucial factor behind Brazil’s success in the past,” Gurría said, but he warned: “Progress must continue on the fiscal and monetary fronts. Ambitious structural reforms are urgently needed to close the productivity gaps with other leading emerging economies while ensuring all Brazilians can share the fruits of prosperity.”

According to the report, raising productivity will be essential for Brazil’s future economic growth, particularly in the industrial sector, which still has significant unexploited potential.

“Reforms to the fragmented indirect tax system, better infrastructure, increased competition and stronger integration into international trade are essential both to raise productivity and improve the incentives to innovate. Ambitious structural reform to reduce the so-called ‘Brazil cost’ is urgently needed to unleash the full potential of the economy,” states the survey.

One chapter of the Survey commends progress in health care, but points out that inequalities in access and waiting times for some medical services remain. To further reduce these bottlenecks, Brazil will need to expand capacity, train more doctors and nurses and improve the efficiency of health spending. The current governance structure of the health system is complex, and more could be done to collect performance indicators, evaluate progress and improve coordination mechanisms.

Environmental Review

The 34-nation OECD’s first-ever Environmental Performance Review of Brazil – the second landmark report – draws attention to the strong progress made in reducing deforestation and emissions of greenhouse gases over the past 15 years.

It also points out, however, that a decade of rapid urbanisation and economic growth have increased pressure on the environment, with severe water shortages in the southeast, soil contamination from inadequate wastewater treatment and rising air pollution. More people now have access to clean water, sanitation and waste management services, but regional disparities are large.

“Brazil has made tremendous progress in terms of its environmental performance, but rigorous policy implementation remains critically important,” Gurría said. “Greening the economy can also bring huge social and economic opportunities, with green markets offering potential to boost GDP (gross domestic product) by up to 7 percent.”

The high share of hydropower and biofuels in the Brazilian energy mix helps keep the economy’s carbon intensity low; to that end, greenhouse gas emissions have dropped by more than 40% since 2000, thanks to the decline in deforestation, but emissions from industry and transport are nonetheless rising, the environmental review adds.

The Review recommends Brazil do more to link environmental priorities with economic policies so as to ensure the sustainable use of its environmental resources. “Brazil should strengthen implementation and enforcement capacity at local level to reduce the gap between ambitious environmental goals and policies actually implemented in areas such as public transport and waste management,” says the report.

The Review also recommends Brazil to adjust energy taxes to reflect the carbon content of fuels and introduce taxes on pollution, waste and use of natural resources; further streamline environmental licensing procedures and build administrative capacity; explore opportunities for eco-tourism in its vast protected area network; develop a framework law for payments for ecosystem services and better monitor their effectiveness; and develop a uniform system for collecting and managing environmental data. [IDN-InDepthNews – 11 November 2015]

Photo: Palácio do Planalto, the official workplace of the President of Brazil. Credit: Michel Temer – Wikimedia Commons

2015 IDN-InDepthNews | Analysis That Matters

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