THE NEW BRAZIL: ACHIEVEMENTS AND CHALLENGES Edmar Bacha Yale Law School April 17,

THE NEW BRAZIL IN A NUTSHELL 1985: Redemocratization 1988: New Constitution 1994: Stabilization and reforms under Cardoso 2002: Lulas election and social policies 2004: Commodity boom 2011: Middle-income trap sets in? 2

ECONOMIC HIGHLIGHTS Inflation and growth record Recent achievements Structural challenges 3

INFLATION AND GROWTH RECORD 4

THE OLD AND THE NEW: INFLATION BEFORE AND AFTER THE REAL PLAN 5

INFLATION BEFORE THE REAL PLAN,

INFLATION AFTER THE REAL PLAN,

GDP GROWTH: SOME RECOVERY AFTER LOST DECADE 8

RECENT ACHIEVEMENTS 9

POOR FAMILIES INCOMES GREW FASTER THAN THE RICH,

POOR FAMILIES GAINS WERE UNAFFECTED BY THE FINANCIAL CRISIS (PER CAPITA HOUSEHOLD INCOME GROWTH, ) 11

UNEMPLOYMENT IS THE LOWEST EVER ( ) jun/02 out/02 fev/03 jun/03 out/03 fev/04 jun/04 out/04 fev/05 jun/05 out/05 fev/06 jun/06 out/06 fev/07 jun/07 out/07 fev/08 jun/08 out/08 fev/09 jun/09 out/09 fev/10 jun/10 out/10 fev/11 jun/11 out/11 fev/12 jun/12 out/12 fev/13

NET PUBLIC SECTOR DEBT IS FALLING ( ,% GDP) 13

REAL INTEREST RATES ARE THE LOWEST EVER ( , p.y.) 14

BRAZIL IS A NET CREDITOR TO ABROAD (GROSS AND NET EXTERNAL DEBT AS A RATIO TO EXPORTS, ) 15

BRAZILS GDP VALUE AND RANK SOARED,

STRUCTURAL CHALLENGES 17

INFLATION-GROWTH TRADE-0FF IS UNFAVORABLE 18

TAX BURDEN IS HIGH (SELECTED COUNTRIES FROM OECD AND LATIN AMERICA) 19

INVESTMENT RATE IS LOW Argentina 23.6 Bolivia 15.9 Brazil 18.7 Chile 22.5 Colombia 22.7 Ecuador 25.4 Mexico 25.2 Panama 24.3 Paraguay 18.3 Peru 22.8 Uruguay 19.6 Mean

SOCIAL SECURITY IS A BIG PROBLEM (OECD data for 2005) 21

EDUCATIONAL LEVELS ARE POOR (PISA 2009 RANKINGS, SELECTED OECD+ COUNTRIES) 22

INFRASTRUCTURE LAGS 23

ECONOMY IS CLOSED TO THE WORLD IMPORTS OVER GDP (%): BRAZIL, L.A., BRICS, US (2011) Argentina20 Brazil13 Chile35 Colombia20 Mexico33 Peru25 China27 India30 Russia22 South Africa29 US18 Average (except BR&US)27 24

EXTERNAL BONANZA HELPED BUT IT CANNOT GO ON FOR EVER 25

SOURCES FOR THE SLIDES S5: Miriam Leitão, Saga Brasileira: A Longa Luta de um Povo por sua Moeda. Record, 2011: S6: Henrique Carvalho, IPCA e IGP-M: Inflação Histórica no Brasil, February 21, Avaliable at: S7, S12, and S14: Thanks to Aurelio Bicalho from Banco Itaú BBA. S8: Edmar Bacha and Regis Bonelli, Accounting for the rise and fall of Brazils Post-WW-II GDP growth, July Available at: Updated in April 2013 by Regis Bonelli. S10: Edmar Bacha, Introdução. In: E. Bacha, Belíndia 2.0: Fábulas e Ensaios sobre o País dos Contrastes. Civilização Brasileira, Computed by Rodolfo Hoffmann from PNAD data. S11: IPEA, A decada inclusiva ( ): desigualdade, pobreza e politicas de renda, Comunicados do IPEA n. 153, Sept., 25, S13, S15, S16, and S20: Armando Castelar, Desempenho Recente e Perspectivas de Crescimento da Economia Brasileira. Presentation to the Seminar: Whither Latin America? Rio de Janeiro: Vargas Foundation, August 9-10, Updated in April 2013 by Julia Cavalcante Fontes. S18: Monica de Bolle, Há Esperança para o trade-off entre Crescimento e Inflação? Seminário de Conjuntura -- IEPE/Casa das Garças, 8 March 2013 (available at S19: Thanks to José Roberto Afonso and Kleber Castro. S21: Paulo Tafner and Fabio Giambiagi, Previdência social: uma agenda de reformas. PPT. October S22 : S23: World Economic Forum, apud Financial Times. S24: World Bank Data: S25: Edmar Bacha, Bonança externa e desindustrialização: uma análise do período In: E. Bacha and M. de Bolle (eds.), O Futuro da Indústria no Brasil: Desindustrialização em Debate. Civilização Brasileira,