Brazilian Dilemmas in 2013

Well 2013 has not started yet in Brazil.  We have to wait until after Carnaval and everybody gets back from summer vacation.  Although it interesting to note that more serious, typically private schools, are starting their school year before Carnaval.

Among many talking heads and a lot of serious commentators, there is not a lot of optimism about macro economic growth for 2013.  While Guido Mantega predicted 4% for last year the number came in at less than 1%.  The fear is that the trend will continue.  The Brazilians government has been talking up spending but in reality it is also being restrained by the fears and realities of inflation.  Typically, government projects are over budget and behind schedule.  Inefficient use of public funds places a serious drag on the economy.  Consumer spending which the government has promoted with vigor over the past 6 to 7 years through the loosening of credit also appears to have reach its limit as an economic driver.

Nevertheless, on the ground, people who have servants are paying them historically high wages with benefits are historically high per diems without benefits.  This money is feeding into the consumer market and it seems to me that either through under-reporting or tax evasion a lot of this activity is not accounted for.  It used to be that the informal economy represented, with some guess work, something like 30 percent of the formal economy.  So if Brazil has a world ranked no. GDP at some 2.5 trillion, add on another 800 billion (roughly 30%) and Brazil easily passes Britain and again become no. 5.

Everyone will tell you there is money in Brazil and when you are out about you see it.  But if society only very slowly increases its productivity through better and more universal education and learning, then things could start moving sideways for a long time.  I am actually optimistic.  I see the demand and see people who want to make a serious effort to meet demands.  The dilemma is to face up to needed reforms in education, social security especially public pensions, tax reform which in turn depends on political reform.

Things change.  Sarney will pass as Brazil’s military dictatorship passed.  There is vibrancy beyond the difficulties.

 

 

 

 

 

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