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 "Brazil is not in charge of its own economy. When the world does good, Brazil does good." The statement was made by consultant Walter Brasil Mundell during his lecture "The second Lula term in the light of the global scenery: more of the same?", at the headquarters of the Arab Brazilian Chamber of Commerce, in the southeastern Brazilian city of São Paulo.
"Brazil is surfing the world economy," said Mundell, to whom the current Brazilian situation reflects a trend in global economy, particularly in the economy of United States.
The developing countries, according to Mundell, are now benefiting from the increased price of commodities and raw materials, which in turn is driven up by the increase in consumption among Americans.
Brazil is a major exporter of commodities and raw materials. The Americans, says the economist, started consuming more in the beginning of the current decade due to a reduction in interest rates determined by the Federal Reserve (Fed), the central bank of the United States, in order to prevent the onset of a global crisis.
During the lecture, though, the economist expressed uncertainty regarding the continuation of such accelerated consumption in the United States, and spoke of the effects that an eventual slowdown would have on Brazil.
"In the event of a foreign crisis, we will grow even less than we are growing now," said Mundell.
To the consultant, there is "reasonable" chance of a global recession. FED has already increased its interest rate. Americans' savings rate is quite negative, due to the decreasing price of real estate, which is the main investment for Americans.
"When the price of real estate goes down, Americans consume less. Of the total income of Americans, 20% is needed to pay debts, and real estate enterprises answer to 76% of such debts. Americans made fantastic operations aimed at obtaining income from their real estate properties, whose price is now decreasing. The United States banks are already beginning to withhold credit," Mundell claimed.
Prices for imported goods are on the rise, and the country's installed industrial capacity also has a high rate of use. This means that, in order to contain inflation, the United States must increase interests rates even further to reduce credit and consumption.
And how does this affect Brazil? "Americans will consume less. They are the ones who maintain the price of commodities," said Mundell. He also called attention to the fact that when the United States' industrial production decreases, the price of metals around the world decreases as well.
"What will happen if our economy continues to be driven by the price of commodities?," the economist asked the audience attending the lecture. "The more the cost of raw materials increases, the more the real (the Brazilian currency) appreciates against the dollar. Inflation falls because the real appreciates," he explains.
Mundell called for the implementation of reforms aimed at reducing the size of the Brazilian government, so the country can be stronger in the face of an eventual global crisis.
The consultant advocates a lower tax burden, more expenditure in infrastructure, and less expenditure in social security. According to Mundell, 60% of the government's social expenditure is currently in social security, and half the country's Gross Domestic Product (GDP) is informal.
The economist also discussed economic events from other historic periods, such as the 1990s, which led Brazil and the world to its current economic status.
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ON THE right bank of the wide channel that constitutes the port of Santos, Brazil's biggest, the Orange Wave awaits a charge of orange juice for delivery to New Jersey. The North King, of Panamanian registry, is taking on soya grown somewhere between Brazil's temperate south and the savannahs of the centre-west. Further on gleaming ranks of cars await their vessel. Portside terminals, once owned by the state, now display corporate heraldry: the logos of COSAN, a sugar and ethanol producer; Bunge, a global food trader; and America's Dow Chemical. Last year Santos broke its 1909 record for exporting coffee, the commodity that midwifed the port in the 19th century.
The Victorian majesty of berthed ships gives no hint of the difficulties the cargo must overcome on its way to and from Santos, which handles 27% of Brazil's international trade. For soya these can start in the field, where scarce storage sometimes forces growers to dispatch it to port regardless of price. Then it faces a bumpy journey on potholed roads (80% of the cargo arrives in Santos by lorry rather than by rail). Privatisation of the terminals and better traffic management have boosted the port's efficiency, but ships must still await high tide to clear the channel, which is 2m (over six feet) shallower than it should be. The state environment regulator is withholding permission to deepen it. Transport costs consume nearly 13% of Brazil's GDP, five percentage points more than in the United States, according to Paulo Fleury of COPPEAD, a business school in Rio de Janeiro. And that is only a small part of the burden that businessmen refer to despairingly as custo Brasil (the cost of Brazil).
Fecundity and frustration sum up the state of Brazil these days. It is bursting with the commodities coveted by the rising economies of Asia, from soya to iron ore. No other country is better placed to cash in on the global craze for biofuels. Yet Brazil refuses to grow in line with the expectations of its 188m people. Since the end of the “miracle years” of the 1960s and 70s, when it was the world's second-fastest-growing large economy, Brazil has lagged (see chart 1). In the past four years, whereas developing countries as a whole have grown at an average of 7.3%, Brazil has loped along at 3.3%.
In 2003 Goldman Sachs, an investment bank, selected Brazil, along with Russia, India and China, as one of the four “BRICs”—the developing countries that would share dominance of the world economy by 2050. It has been the slowest-growing by far, leading some Brazilians to wonder whether the “B” would be dropped. South Korea's income per person overtook Brazil's in the 1980s; it may not be so long before China's and India's do the same.
Brazilians have non-economic grounds to fret, too. In its first crack at national power the Workers' Party (PT) of President Luiz Inácio Lula da Silva—which used to crusade against corruption—orchestrated a baroque scheme involving bribes to Congressmen in exchange for votes, known as the mensalão (monthly allowance). The Congress that ended its four-year mandate in December is widely reviled as “the worst in history”. Within the past year Brazil's two biggest cities, São Paulo and Rio de Janeiro, have been terrorised by gangs operating from inside the prison system. Education, perhaps Brazil's biggest failing, seems to be getting worse rather than better. Air travel has been crippled following the mid-air collision last year between a passenger plane and an executive jet. Brazil is “falling to pieces”, lamented Lya Luft, a columnist for Veja, the biggest news magazine, last year