Summary: Brazil in 2014 - Economic and Political Prospects

Speakers:

• Davis Hodge, Director, Prospectiva (Download his presentation)
• Lisa Schineller, Economist and Managing Director, Latin American Sovereign Ratings, Standard & Poor’s (Download her presentation)
• Ricardo Sennes, Managing Partner, Prospectiva (Download his presentation)
• Eric Farnsworth, Vice President, Americas Society/Council of the Americas (moderator)

Summary

On November 8, AS/COA hosted a public discussion on Brazil’s economic and political prospects for 2014. President Dilma Rousseff—whose approval ratings fell after the street protests in June—will seek reelection amid the country’s slow economic growth and rising inflation. Major cabinet shifts are expected, as Rousseff’s chief of staff and several ministers are to leave the federal government to run in state elections. As these changes take place, Brazil will host the World Cup. Panelists discussed the political climate in Brazil, the impact of Brazil’s macroeconomic policies, and the next administration’s ability to address Brazil’s economic bottlenecks.

The Rousseff Administration and the 2014 Elections

Prospectiva’s Ricardo Sennes focused on Brazil’s political fragmentation, Rousseff’s current term, and the outlook for the 2014 elections. With respect to the political system, Sennes noted that states were “relatively weak” and had a “limited regulatory agenda.” At present, Congress has a "reduced role" as the judiciary branch gains increasing visibility, he said. There are 11 major political parties; the Brazilian Democratic Movement Party (PMDB) is the largest, followed by the Workers’ Party (PT).  

Prior to the June protests, Rousseff’s approval ratings exceeded 60 percent. But after the demonstrations, these ratings fell to 38 percent. As Sennes observed, many Brazilians disapproved of the administration’s handling of health care, public security, and taxes. But as of October, Rousseff’s approval ratings recovered and stood at 53 percent. Ahead of next year’s election, Rousseff leads the polls. In all four of the voting scenarios that Sennes presented, Rousseff was the projected winner. He concluded that in spite of the progress the country has made, making major changes to macroeconomic, social, public, and industrial policies still remains a challenge because of the fragmentation of the political system and the many interests groups involved.

Brazil’s Macroeconomic Scenario

Lisa Schineller of Standard and Poor’s commented on Brazil's macroeconomic climate. Growth projections for 2011-2015 indicate that Latin America will grow only 3.2 percent, with Brazil slated to expand by 2.3 percent. Schineller suggested that a combination of “structural, cyclical, external, and domestic issues” was the source of the slowdown. She also noted that while unemployment rates have remained low—around 6 percent—the country has high labor costs, especially in comparison to a Latin American country like Mexico. Even though debt is going up moderately, she concluded that it was “not a rupture.”

Trade and Industrial Policies

Propsectiva’s Davis Hodge explained that former President Luiz Inácio Lula da Silva and Rousseff were influenced by development economists and implemented a number of Keynesian industrial policies. The country’s development bank has promoted “national champions” of industry and the government took measures to reduce imports. Hodge argued that Rousseff’s program to promote industry, called Brasil Maior, has become the defining structural platform not only for economic development but of the administration as a whole. The program includes state funding mechanisms to promote domestic production, innovation, and exports. In practice, the focus has been more on import substitution than traditional innovation, with the exception of biofuels.

However, Hodge observed that Brazil continues to face a lack of competitiveness and increasing deindustrialization as current policies have not resolved these issues. Instead, these policies consolidated the market in specific sectors and incentivized local production of goods already on the market, he said. In order to remediate some of these challenges, Hodge noted that Brazil must invest heavily over the next decade in infrastructure, education, innovation, technology, and exports.