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To grow or to grow- the choice is Brazil’s
October 31, 2013, 5:45 pm

For centuries, economists have been trying to uncover the puzzle of how a handful of nations have become so prosperous, while the majority has remained underdeveloped. It is an understatement to state the fruits of world economic progress has not been equally divided.

The economic and social progress achieved by South Korea, the US, and, more recently, China, cannot be applied to Brazil, for instance.  The critical playout of consumption and population apply differently in the political and economic agendas of different countries.

There are cultural, political and legal institutional differences that pave the path for any economic policy or reforms that aim for growth: cultural values also matter here.

Brazil is hosting next year's World Cup and summer Olympics two years later [Getty Images]

Brazil is hosting next year’s World Cup and summer Olympics two years later [Getty Images]

Since 2010, there has been an increasing avalanche of local and international criticism of Brazilian economic policies undertaken to bounce back from the global financial and fiscal crisis.

Over the last two years, the Brazilian economy has posted lower growth, and has undertaken a disappointing trajectory, but this does not mean that the monetary and fiscal policies “have blown it” or that “the country is ill”. The reference is to the special report entitled “Has Brazil blown it?” published by the UK-based The Economist magazine, September 28, 2013, and Edmar Bach article “Open or Open, this is the question” published at  Valor Econômico Newspaper, September 27,  2013.

Of course, it is difficult to remember in the din that these are “media allegations” and it is an entirely different debate whether they undermine the country’s economic fundamentals and economic governance – transparency and Brazilian social inclusion – which is aimed at overcoming domestic and international crises caused by developed countries (the US and Europe).

The real fact is that, developed countries, guided by neoliberal economic premises, are still unable to navigate in the world of interdependent global relations.

Some Brazilian economists revere the importance of Albert Hirschman’s thoughts (1915-2012) regarding the choice of an economic policy that might cause an enhanced economic imbalance that is able to reshape economic development.  I believe, in this century, economic policy must focus on former World Bank Chief Justin Yifu Lin´s premises: industrial policy must target globally comparative advantages, aiming at global competitiveness.

Now global capitalism has a distinct feature compared to the previous period: There is a new realignment of bilateral and regional trade agreements that aims to promote a new economic order and balance of power among nations.

Throughout the next five years, investment to build new infrastructure and logistics is slated to be around $270 billion in roads [Getty Images]

Throughout the next five years, investment to build new infrastructure and logistics is slated to be around $270 billion in roads [Getty Images]

Brazil is fighting slowing investment and a barely expanding economy and yet there is a strong impetus for developing new infrastructure and logistics.

Throughout the next five years, investment to build new infrastructure and logistics is slated to be around $270 billion in roads, railways, ports and airports interlinking the country’s agribusiness and industrial production to meet growing domestic and international demands.

Starting in 2014, some 7,500 kms of new roads will be built, as will 10,000 kms of railroads; a total of 19 ports will be reformed and expanded, as well as four international airports. There will be more than 400 new regional airports constructed and an equivalent number of regional airports will be rebuilt and expanded. The actual installed energy capacity will be expanded at a growth rate of 16% per year, starting from 116,000 MW going to 182,000 MW in 2021. These investments are expected to amount to $75 billion in energy generation and transmission.

All these programmed investments in the form of public and private programs (PPP), as well as public concessions, are aimed to make investment rise from 18.5 per cent of GDP to 24 per cent of GDP in 2022.

There will be an additional growth factor Brazil is betting on: the investment of $220 billion in oil and gas, in the pre-salt layer throughout the next 10 years.

In the short run, the forecasted level of investment is not enough to sustain economic growth at 6 per cent per year, but it will allow it to grow above 3.5 per cent per year, starting next year.

Of course, all these large-scale ambitious investment projects present considerable economic challenges: they will require domestic and foreign financial resources, and an increasing number of skilled and semi-skilled labors that do not exist in the country at the moment.

At the same time, it will require extremely efficient monetary and fiscal policies to allow price level sustainability, and a lower real interest rate, such that, the exchange rate will remain competitive and stable over the next 20 years.

Although this is a promising scenario, Brazil’s future will not fly in clear skies. Latin America’s biggest economy is still haunted by its long history of runaway inflation, the biggest bane of President Dilma Rousseff’s plans to rekindle growth.

The Brazilian economy is not part of the major regional trade and technological agreements with the US. It will be an irreversible mistake if its trade and industrial production is not linked to global markets and backed up by bilateral and regional trade agreements: for growth and competitiveness, trade matters.

Nonetheless, the federal government has called for foreign technology, expertise, and capital to leverage country growth and structural efficiency. This call is a clear political move towards cultural and financial openness to build a more efficient and prosperous Brazilian capitalist system.

The views expressed in this article are the author's own and do not necessarily reflect the publisher's editorial policy.