Caso 2

Case: IA0015
Version: 29/10/2020
Case
Brazil 2016:
ISSN 123-456-789
What went wrong?

On 31 August 2016, Dilma Rousseff, president of Brazil, was dismissed in the Senate by 61 votes
in favor and 20 against. So came the end of 13 years of political dominance of the Workers Party
(Partido dos Trabalhadores (PT)). Before this, Brazil had shown the world that it
could successfully produce the biggest Olympic Games in history, but it also displayed other
not-so-encouraging records. Brazil suffered the worst recession in decades and the biggest
corruption scandal in its history. Between cries and anger, Dilma and millions of Brazilians
wondered what went wrong.
Since the PT - Dilma’s party and its predecessor Lula - had come to power in 2003 and up until
2013, 40 million people had left poverty, the economy grew by 50% and, for the first time, a glo-
bal crisis between 2008 and 2009, had not affected Brazil.
However, when the economy began to slow down in 2012, the Government decided to stimulate
consumption, expand public spending, subsidize energy, and distribute subsidies discretionally
among industries considered strategic for growth. The move served to sustain the economy and
win the re-election of 2014, but it did not seem to give excellent long-term results.
Everything worsened after the tight re-election of Dilma in 2014. In 2015, the economy had
con-tracted by 4%; the fiscal deficit was 10% of gross domestic product (GDP), inflation had
reached 11% annually, and the Real had devalued 70% in 2014 and 2015. Government bonds
had been rated as “junk bonds.” The manufacturing industry, one of Brazil’s great development
goals, has not grown since 2010 due to low competitiveness. Even more worrying was the rising
unemploy-ment rate that reached 10%. Instead of consolidating the social improvements
achieved, poverty levels could increase again.
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Case: IA0015
A few hours after the dismissal of Dilma, Michel Temer, of the Brazilian Democratic Movement
Party (Partido do Movimento Democrático Brasileiro (PMDB)), a former ally of the PT and
until that time Vice President, was sworn in as the new President. Temer had two years until
the 2018 presidential elections to define his destiny and that of Brazil. He had already sent
clear signals and formed a competent technical team to control inflation and public spending.
Could you carry out the structural reforms that Brazil needed to strengthen growth and sustai-
ned development? Was it another cycle of high commodity prices, abundance in international
financial markets, and expansionary fiscal and monetary policies followed by collapse and
readjustment? Would Brazil take advantage of structural changes in substance?
1995-2010: CARDOSO AND LULA IN PURSUIT OF
STABILITY AND SOCIAL PROGRESS

“Building prosperity requires caution and patience.
Populism is a shortcut that does not work.”
Fernando Henrique Cardoso
“No one is safe, in a world of injustice. The poor must have

a reason to live, not to kill or die.”
Luiz Inácio “Lula” da Silva
President Fernando Henrique Cardoso (1995-2002) had spent most of his term, firstly, elimina-
ting the strong macroeconomic imbalances caused by the public debt and balance of payments
crisis of the 1980s. Secondly, reforming the productive structure to increase its efficiency and
competitiveness, privatizing obsolete state enterprises, and opening up the economy to take ad-
vantage of the opportunities of a growing globalized world.
In 1999, the Government adopted a macroeconomic policy known as the macroeconomic tripod:
(1) Central Bank’s inflation and its autonomous goal to achieve it; (2) goal of fiscal surplus and
fiscal responsibility of federal and state governments; and (3) exchange rate flexibility.
These policies were very well received and began to show good results, only interrupted by the
uncertainties of the 2002 presidential election. After the lost decade without growth and high
inflation of the 1980s, Brazil grew again at 3% annually (Baer, 2009; Kupfer, Ferraz and Carval-
ho, 2009) (see Exhibit 1).
President Lula (2003-2010) proclaimed the arrival of a “new era” and his policies were aimed at:
p. 2 (1) consolidating macroeconomic stability from the control of inflation, fiscal responsibility and
Case: IA0015
the reduction of external vulnerabilities, (2) encourage the growth of industry and exports, (3)
reduce poverty and inequality, and (4) achieve greater leadership of Brazil in the world. As of the
end of 2003, the economy entered into a robust expansionary cycle that was only interrupted by
the international financial crisis in 2008. The real growth of the economy averaged 4% per year
during Lula’s term (see Exhibit 1).
Despite his traditional discourse, contrary to international financial markets, Lula surprised the
world by maintaining the tripod’s macroeconomic stability policy and appointing Henrique Mei-
relles, a Brazilian banker with extensive experience on Wall Street, to head the Central Bank. Du-
ring the Lula government, inflation was controlled, through the reduction of real interest rates,
the reduction of the Government’s net debt, and the reduction of interest services of the public
debt (see Exhibits 2 and 3).
Exports grew steadily, driven by strong growth and demand for agricultural and mineral com-
modities from China and other emerging economies. Although industrial exports also grew, they
did not do so at the same rate as commodities. They reduced their share of total exports, which
produced the so-called “commoditization of exports” (see Exhibit 4).
The good economic performance of Brazil and the liquidity of the international financial markets
allowed us to enjoy a strong increase in foreign investments, which allowed us to accumulate a
large number of foreign exchange reserves in the Central Bank. Although the floating exchange
rate implied some volatility, the steady inflow of currencies caused a trend towards the apprecia-
tion of the Real, which only had a brief period of interruption during the financial crisis of 2008-
2009, when the flows momentarily reduced from capital to emerging economies and the value of
exports (see Exhibits 6, 7 and 8).
The social results were impressive. Approximately 40 million people came out of poverty. Poverty
decreased from 35% of the population to 20% and income inequality from 0.58 to 0.54 (measu-
red by the GINI index), although it was still high compared to other emerging countries such as
Malaysia (0. 46), China (0.45), and South Korea (0.32) (see Exhibit 10). Undoubtedly, economic
growth (4% annual), low inflation (6.5% annual), and an unemployment drop (from 12% in 2003
to 6% in 2010) contributed to this social achievement. Nevertheless, social policies also contri-
buted, the increase in the minimum wage (50% in real terms) and the direct assistance program
adapted to the most impoverished families: Bolsa Familia. While this program had begun in the
Cardoso government, fiscal problems did not allow widespread dissemination. Lula was able to
expand them and reached more than 12 million families with an average monthly contribution
somewhat higher than US$ 100 per family.
In external leadership, Brazil did not achieve the most ambitious objectives as a permanent mem-
ber of the United Nations Security Council, with greater participation in the World Bank board,
and reduction of tariff and non-tariff barriers to food products in the United States and develo-
ped countries. Nonetheless, it was recognized as one of the future powers along with the United
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Case: IA0015
States and the BRICs (Brazil, Russia, India, and China), as well as hosting the Soccer World Cup
in 2014 and the Olympic Games (Rio de Janeiro) in 2016.
GLOBAL CRISIS 2008-2009 AND 2010 ELECTIONS

Whenever there was an economic and financial crisis in the world, Brazil - like most emerging
economies - suffered a major crisis. The international financial crisis of 2008-2009 threatened
to be a new debacle on three fronts: (1) a drop in foreign investment; (2) lower exports, primarily
due to the fall in international prices; and (3) greater uncertainty and less investment.
However, for the first time, Brazil went through the international crisis faster and with fewer con-
sequences than developed countries. The primary fiscal surplus, the reduction of public debt and
low inflation gave the necessary space to implement fiscal and monetary expansionary measures,
without putting macroeconomic stability at risk. Fiscally, tax exemptions were granted to durable
and capital goods, expenses, public employment, and social programs increased. Monetarily, the
Central Bank increased liquidity, and public banks granted more loans, increasing their partici-
pation in the banking market from 34% to 42%. The countercyclical measures sustained domes-
tic demand and employment.
At the beginning of 2010, President Lula enjoyed a positive evaluation of his government close to
85%, enough to easily win the presidential elections of October that year. However, the Consti-
tution prohibited a third term. The PT did not have another leader with high popularity, and this
threatened its continuity at the head of the government. Lula consequently decided to actively
support her chief of staff, Dilma Rousseff, to be her successor. It was a risky move, Dilma was
unknown in most of the population and had no electoral experience since she had always held
technical positions and never through popular election.
Dilma Rousseff was born in 1947 to a middle-class family. In the mid-1960s, she joined leftist
movements that carried out guerrilla attacks and propaganda against the military dictatorship.
In 1970, she was captured and sent to prison until 1973. Once released, she trained in economics.
In the decade of the 1990s, she was Secretary of Energy of the state of Rio Grande do Sul, and in
1998 she joined the Workers Party (Partido dos Trabalhadores (PT)). Lula appointed her Minis-
ter of Energy and Minerals in 2003 and Chief of Staff in 2005. She had become Lula’s right-hand
thanks to her enthusiasm and loyalty.
At the beginning of the election campaign, the polls only gave Dilma 20% from those who would
vote. Lula was in charge of the campaign accompanying Dilma to all political rallies and debating
hard with the main opposition candidate, José Serra, of the Brazilian Social Democracy Party
(Partido da Social Democracia Brasileira (PSDB)), the favorite to win the elections with a 40%
potential approval rating from voters.
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Case: IA0015
In 2010, the emerging countries had fully recovered. Brazil ended the year with 9% growth and
Dilma’s victory in the second round of the elections, by way of 56% of the votes. On 1 January
2011, Dilma Rousseff assumed the position as the first woman president in the history of Brazil.
She began her presidency with two enormous challenges: one political and one economic. Poli-
tically, she should strengthen and consolidate her popularity and image as president and soli-
dify as leader an alliance of very different political parties. Economically, her Government must
sustain the accelerated growth of Brazil and consolidate its economic and social development.
THE DELICATE POLITICAL BALANCE OF BRAZIL

The political regime in Brazil is that of the Presidential Federal Republic of a direct, universal,
and compulsory election. The president is elected and has a term in office for four years, with
only one re-election after that. The Congress has two chambers, one of the deputies and one of
the senators, elected every four years simultaneously with the president and state governors. Se-
nators have a term of eight years, but the Chamber renews in cycles 2/3 - 1/3 every four years.
Therefore, the president-elect and his/her party have the prospect of forming a majority in Con-
gress while in office.
The judiciary is independent. The Senate appoints the judges, and there are two instances of
appeal, the last in the Supreme Court of 11 ministers. The president proposes the judges of the
Court and approval is by the Senate; once appointed, they hold the position until their manda-
tory retirement at the age of 70.
In 1989 since the total restoration of democracy, there were three main parties: the Workers Par-
ty (Partido dos Trabalhadores (PT)), of the moderate left, the Brazilian Social Democracy Party
(Partido da Social Democracia Brasileira (PSDB)), center, and the Brazilian Democratic Move-
ment Party (Partido do Movimiento Democrático Brasileiro (PMDB)), without a well-defined
ideology, but with a center-right tendency.
None of the three parties can reach a sufficient majority to govern since the system is fractured.
There are more than 25 parties, and hardly any party exceeds 20% of the legislative positions
(see Exhibit 11). That is why alliances are required to win presidential elections and, primari-
ly, to reach majorities in Congress and maintain governance. In recent decades, only the PT and
PSDB have presented candidates with the possibility of winning the presidential elections, which
is why they have been the two leading voices of alliance and leaders of government or, by default,
of the opposition (Bethell and Nicolau, 2008; Shayo, and Akira, 2011).
The PMDB is the strongest party in terms of legislators and intendants but has not had good presiden-
tial candidates. Therefore, it has had to form alliances with the winning party from the presidential
elections, in order to obtain key positions in the cabinet and ministries, and ensure a good
relationship between the federal government, the state, and municipal governments where the
p. 5 PMDB governs. Since 2005, it was the main ally of the PT, and the president of the party,
Case: IA0015
Michel Temer, was elected vice president in 2010 and 2014 with Dilma Rousseff as President.
The PMDB had also been the main ally of the PSDB during the presidency of Fernando Henri-
que Cardoso (1995-2002).
The rest of the parties form stable or circumstantial alliances with the ruling party, or with the
opposition that follow their ideological affinities. However, above all, corresponding to their po-
litical and electoral conveniences. Among the most influential parties are the Democrats (Demo-
cratas (DEM)), the Progressive Party (Partido Progresista (PP)), the Brazilian Socialist Party
(Partido Socialista Brasileiro (PSB)), and the Social Democratic Party (Partido Social Democrá-
tico (PSD)), recently formed by the defection of politicians from several older parties.
As in the administration of Lula, Dilma Rousseff led an alliance, mainly with the PMDB and other
minor parties. This coalition assured a majority in the two houses of Congress close to 70% of
the representation. The aforementioned was sufficient to pass laws and “provisional measures”
(temporary laws issued by the Executive to be confirmed by Parliament) with a comfortable mar-
gin, though this was on the provision that the Government can maintain the loyalty of all allies,
which is always demanding and unstable (see Exhibit 11) (www.eiu.com).
The PSDB articulated the alliance, with the PMDB and the DEM, which allowed it to govern and
carry out numerous reforms of President F. H. Cardoso between 1995 and 2002. Since 2003, the
PSDB was the leader of the opposition, with the DEM its main ally. Although the PSDB has had
low representation in Congress (10% to 15%), it was influential in the wealthiest states of sou-
thern and central Brazil. In 2016, it ruled six of the 27 states, including Sao Paulo, the richest
and most industrialized.
THE ECONOMIC AND GROWTH CHALLENGES IN
2011
Although the 2003-2010 growth had been 4% per year, it was lower than in other emerging eco-
nomies such as China at 9% per year, and Latin America was averaging 6% per year. The gross
investment rate barely reached 19% of GDP, far exceeded by China 48%, South Korea 30%, and
the largest countries in Latin America, with averages of 25%. Industrial competitiveness was also
disappointing. The industry’s share of GDP had been diluted, and the composition of exports re-
flected a strong “commoditization” and a low penetration of Brazilian manufactured products in
global markets (see Exhibits 8 and 11).
Several reasons could explain the low growth, investment, and competitiveness. On the one hand,
there was the appreciation of the Real, caused by the steady influx of foreign investments and
exports, and on the other, the usual suspect of the “Brazil cost” (The Economist, August 2012).
This was a set of persistently high general costs that withheld productivity and competitiveness
p. 6 from companies which provoked: (1) a high real interest rate (around 10% per annum; see Ex-
Case: IA0015
hibit 2); (2) substandard and expensive infrastructure (see Exhibit 12); (3) high tax burden of
36% of GDP (see Exhibit 3); and (4) inadequate, slow and burdened bureaucratic government
services with complicated, confusing and inefficient regulations (see Exhibit 12).
Appreciation of the Real
The enormous liquidity caused by the bailouts of central banks, especially that of the United Sta-
tes, produced a substantial flow of investments to Brazil (see Exhibits 4 and 7). With interna-
tional interest rates close to zero, Brazil was an attraction to investors, where they could reach
annual return rates of 10%, with acceptable risks and a relatively stable exchange rate (see Ex-
hibit 2). As a result, the Brazilian currency had appreciated 80% in real terms (adjusting for
inflation) between 2003 and 2011 (see Exhibits 6, 7, and 8). This exchange rate appreciation
contributed to reducing the external competitiveness of Brazilian products, especially those ma-
nufactured, since agricultural and mining products had higher productivity than manufacturers
(The Economist, 6 August, 2011).
The high cost of doing business in Brazil
The interest rate in Brazil had been high, historically high. For almost the entire decade of the
2000s, the real rate (discounting inflation) of the Central Bank, SELIC, remained above 10%,
which helped to control inflation, attract external investors and refinance public debt, but it made
the credit more expensive. The rates for consumers and SMEs were higher than 40% per year since
bank spreads could reach 30%. The main components of the spreads were: high-risk premiums
on default of the debtors (7.5% on average), the legal slowness to collect credits in defaults, taxes
on financial services, and high-profit margins. As in many sectors of the economy, the financial
market tended to concentrate in a few large banks (The Economist, February 27, 2016).. Howe-
ver, large companies could access subsidized long-term loans at annual rates of 6% at the Natio-
nal Development Bank (Banco Nacional de Desarrollo (BNDES)).
Infrastructure ranked 107th out of 144 countries, according to the competitiveness index of the
World Economic Forum. It was well below the assessments of South Korea (22), Chile (31), China (9),
or even India (87). Especially poor was the transportation infrastructure: routes, railways, and
ports (see Exhibit 12). Importing or exporting a container through Brazilian ports cost twice as
much as in member countries of the Economic Organization for Cooperation and Development
(OECD) (The Economist, January 2013) (125). While the supply of electricity was a little better
(69), this was one of the most expensive among emerging economies (see Exhibit 13). The taxes
made the electricity bill more expensive by 45%. The explanation was, in part, because the cost
of a kilowatt per hour was 50% higher in Brazil than the global average (http://www.firjan.org.
br/data/pages/2C908CEC30E85C950131B3B6A4A069BE.htm 22/03/13).
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Case: IA0015
While the fiscal deficit reduced, having been achieved by increasing taxes and not moderating
expenses. The tax burden was 35% of GDP, much higher than 26% of economies of similar per
capita income (see Exhibit 3). In return, citizens get one of the most onerous bureaucratic bur-
dens in the world, one of the most complicated regulatory systems and some of the worst pu-
blic services. The World Bank’s Doing Business report, which estimates the quality and weight
of regulation in different countries, evaluated Brazil as130 among 185 countries. For example,
a medium-sized company spent an average of 2,600 hours per year to pay taxes in Brazil, while
the global average was 277 hours. The procedures to open a new company required 119 days; the
world average was 12 days (see Exhibit 12).
The high cost of doing business in Brazil did not discriminate between industries. Hit hardest
were those capital-intensive, more regulated entities, participating in the formal economy and
the most complex businesses. These institutions could suffer a double tax burden due to the
complicated system and the weight of distorted taxes.
INDUSTRIAL DEVELOPMENT: DREAMS AND
NIGHTMARES
While the manufacturing industry had grown in the Lula government since the crisis of 2008-
2009, it only did so moderately. The industry has lost its share of GDP and exports since the 1990s
(see Exhibit 9). According to some, it was the result of the development process where services
with the highest added value were displacing the industry. The extraordinary growth of commo-
dities accentuated the dilution and the appearance of deindustrialization.
However, for many industrialists, the problem was that China only bought natural resources
from Brazil (mainly iron and soybeans) in exchange for its industrialized products. In many in-
dustries, China’s excess production capacity was almost equal to all world trade (The Economist,
27 February 2016). The appreciation of the exchange rate and the “Brazil cost” further worse-
ned the possibility of competing with the Chinese industry (The Economist, 14 January 2012; El
País, 29 March 2012).
President Lula promoted industrial advancement, mainly through the state credit of BNDES. The
loans granted grew from an annual average of US$ 14 billion between 1997 and 2002 to US$ 90
billion in 2010-2011 (Lazzarini, Musacchio, and Bandeira-de-Mello, 2011). The average loan rate
was 6%, while the average debt rate of the government, the bank’s shareholder, was 12%, which
implied a 6% rate subsidy (The Economist, 5 August 2010). BNDES was practically the only bank
in Brazil that lent for terms of more than five years.
Many companies received funds to create global champions as a part of the goal of international
leadership. With loans from BNDES, JBS, Marfrig, and Brasil Foods cold storage plants acqui-
p. 8 red companies in several countries and became the largest cold storage facilities in the world.
Case: IA0015
The largest companies, for example, Vale (mining), Ambev (beer), Braskem (petrochemical),
CSN and Gerdau (steel), and Votorantim (cement), received lucrative credits (Almeida, 2009).
Petrobras also secured capital from BNDES to carry out the exploitation investments of the new
oil reserves, but also to displace private oil companies (O Estado de São Paulo, 8 January 2013).
The main criticisms of this policy highlighted that favoritism focused towards large companies
in traditional and mature industries. The eleven largest companies in Brazil received 74% of the
capital of BNDES. Additionally, many of the loans had been destined to mergers and acquisitions
to consolidate their industries or expand internationally, instead of developing new businesses.
They also questioned the risk of creating inefficient and dependent companies on credit and tax
subsidies and the threat of corruption and collusion. Although the beneficiary companies had re-
liable financial indicators, it was striking that the companies that received the most credits were
the ones that made the most contributions to political campaigns (Lazzarini, Musacchio, and
Bandeira-de-Mello, 2011).
For many economists, the policies should be more general, less selection of sectors and companies.
They should favor the emergence of new industries and new technology and knowledge-intensive
companies, for example, software, microelectronics, and biotechnology. After all, the main ob-
jective of industrial policy was to help entrepreneurs for a limited time to develop new industries
and generate competitive advantages by accumulating knowledge and skills, capital, and specific
infrastructure. New projects of large companies could be supported, but, above all, they should
favor SMEs and new ventures that do not have the resources of large companies.
However, this type of policy had political risks. Developing new industries could take several
years, there is uncertainty about the results, and, like any policy that consumes significant public
funds; it should have reliable political and social support. It was easier to obtain that support in
companies and industries that used a lot of labor - such as textiles, food, furniture, footwear, and
construction - and in projects with a strong national affinity.
Finally, some thought that industrial policy was something of the past. Brazil should generate
suitable conditions of productivity and competitiveness by promoting technical training, educa-
tion, funds for research and development (R&D), developing deep and stable capital markets, and
adequate financial instruments for new ventures, and less bureaucracy and tax burden.
THE PATH CHOSEN BY DILMA IN 2011

In 2011, the emerging world continued to grow, commodity prices remained high, and the super
liquidity of the financial markets allowed to keep cash flows at a low-interest rate. However, some
businessmen and economists began to argue that growth depended too much on high commodi-
ty prices and the steady expansion of domestic consumption. The first was volatile and difficult
to predict, and the second showed signs of exhaustion. Continuing to grow steadily in the futu-
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Case: IA0015
re would depend on substantially increasing production and productivity at the same or higher
rate than consumption.
The increase in real wages and consumer credit had strongly boosted domestic demand. Howe-
ver, since 2009, salary increases were higher than the average increase in labor productivity. The
salary increase was even higher if calculated in US dollars due to the sharp appreciation of the
Real (see Exhibit 14). Although the salary increase encouraged consumption, it also began to
reduce the competitiveness of the industry and reduced expectations of profitability and invest-
ment possibilities. The situation was more difficult for industries with greater exposure to the
international market, and that had not substantially improved their technology and productivity
(Instituto de Pesquisa Econômica Aplicada, 2012).
Improving productivity would require a significant reduction in costs in Brazil and a substantial
increase in investment, something that seemed increasingly distant due to Brazil’s low savings
rate, only 18% of GDP (see Exhibit 8). The use of external savings could continue, but this in-
creased external vulnerability and caused an appreciation. Arminio Fraga, former president of
the Central Bank (1999-2002), declared:
“To recover the investment, security, and clarity conditions in the rules of the game must be im-
proved. And a little better rules.”
Another essential element to improve productivity was the capacity and education of the work-
force. While social improvements allowed a higher number of children to attend school, the qua-
lity of education was still deficient. In the international PISA exams, which measure the quality
of education, Brazil was ranked 55th out of 65 countries evaluated (see Exhibit 12). Worse, only
11% of workers had tertiary credentials (The Economist, 15 September 2012).
The intense economic activity of recent years had exhausted the available skilled labor. Now, ge-
nerating more trained workers, technicians, and professionals would depend on improving access
and quality of education.
With a positive popularity rating above 70% and a political alliance that had won the elections,
Dilma Rousseff had an opportunity to implement long-term development policies. The president
chose to continue stimulating consumption and credit while trying to alleviate the most urgent
cases of low competitiveness with some tax exemptions and better protection. While the recom-
mendations to increase productivity and improve industrial policy were reasonable, they did not
seem urgent. An expanding domestic market would attract more investment and help drive Bra-
zil’s dependence on foreign markets.
The reference interest rate (Selic) reduced from 12% per year to a minimum record of 7.25% in
2012. With annual inflation expected around 5.5%, this would mean a real rate of less than 2 %. The
Government also ordered public banks to increase credit and reduce spreads and interest rates.
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Case: IA0015
To improve competitiveness and encourage investments, the Government increased import ta-
riffs on the most compromised products. With these measures, Brazil became one of the most
protected economies (O Estado de São Paulo, 6 January 2013). During 2012, the industry tax
(IPI) and some social charges were reduced, but only temporarily, with the promise to renew if
necessary, and only in some committed industries, among which were the automotive, applian-
ces, steel, and building materials.
However, no tax reform project would simplify the system nor reduce distortion and pressure on
taxes. All of which would be very difficult to achieve without reducing public spending and wi-
thout major administrative and legislative reforms, since more than two-thirds of the expenditure
was committed to salaries and pensions protected by laws and the Constitution (see Exhibit 3)
(The Economist, 15 September 2012).
In 2011, the Government allocated funds equivalent to 1.5% of GDP per year for infrastructure
projects. Arthur Carvalho, from Morgan Stanley investment bank, said it was not enough. Bra-
zil would need to spend between 6% and 8% of GDP per year, to reach South Korea, and 4% per
year to reach Chile in 20 years (The Economist, 11 August 2012).
In 2012, a plan was announced to offer the private sector to operate railways, routes, and ports.
However, private investors argued that regulatory risk and difficulties in obtaining all licenses -
which could take up to five years - remained very high. Private investors required a return close
to 20% to offset all economic, commercial, and regulatory risks of new infrastructure works (The
Economist, 18 August 2012).
In 2013, a 20% reduction in electricity rates was announced. A third of the reduction would re-
sult from tax cuts, while pressure for the two-thirds was on companies that had electricity ge-
neration licenses. The electricity companies had substantive losses in the value of their shares.
Petrobras was forced to keep the price of fuels below the international price as a part of the low
energy price policy.
2014 REELECTION AND ACCELERATED
DETERIORATION
At the end of 2013, the path followed was not giving the expected results. Low real interest ra-
tes and credit expansion had maintained consumption but had not achieved increases in invest-
ment, and the industry continued to suffer from low competitiveness and increased discretionary
of tax and external protection rules. Inflation rose and passed the annual target of 6.5%. Growth
in emerging markets began to slow down, and commodity prices began to fall. Foreign investors
were increasingly restless with the prospects for lower growth, while public spending continued
to increase, and the primary surplus declined more and more (see Exhibit 3).
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Case: IA0015
With less than a year left to the 2014 elections, there was no time for substantial changes that
would take time to deliver results. The government tried to prevent inflation from getting out of
control, maintained employment and real wages while promising new plans and policies for af-
ter the elections. In October 2014, Dilma obtained re-election with 52% of the votes and defeated
Aécio Neves, a candidate of the arch-rival PSDB party in the second round. However, the posi-
tion of the PT in Congress, and as leader of the alliance weakened through losses of deputies and
senators. It resulted in the fragmentation of parties in Congress had increased.
The reelection win was a Pyrrhic victory. Brazil was in recession, and consumption began to level
off, inflation accelerated, the price of commodities began an abrupt decline of 50%, the external
trade surplus disappeared, and the current account deficit touched 4% of GDP, which increased
the dependence on increasingly volatile external capital. The growing fiscal deficit began to put
pressure on the debt rating and the interest paid by the government. Foreign investors’ confiden-
ce deteriorated as they speculated possible increases in interest rates in the United States during
2015 and 2016. The government’s popularity collapsed, and social protests against it grew in in-
tensity and frequency.
In 2015, Dilma attempted a change of direction to regain public and business confidence by
appointing Finance Minister to Joaquim Levy, a champion of fiscal efficiency and austerity. He
promised a plan to reduce public spending and deficit, but Levy never had the necessary political
support for such a task. 90% of the cost reductions required congressional approval.
Now Brazil faced urgent challenges; in addition to productivity, there was a need to reverse the 4%
recession in 2015, which threatened to hit 3% in 2016, to stop inflation of 11%, and the growing
fiscal deficit of 10% and public debt that reached 66% of GDP and threatens to rise to 100% in
2020. The debts of most states had also grown alarmingly (The Economist, 2 January 2016).
Nelson BarBolsa, who had replaced Levy as finance minister, promised to have the support that
his predecessor had lacked to reduce the deficit (see Exhibit 5). At least, the 70% devaluation
returned some competitiveness to exports and some industries.
Perhaps most worrying was the rise in unemployment. One million people had lost their jobs, and
unemployment exceeded 10%. For the first time in two decades, poverty could increase. Consumer
confidence deteriorated as consumption, which had been the main engine of growth, began to fall.
Petrobras, the state-owned company that Dilma had led as Minister of Energy during the Lula
government, was rocked by a corruption investigation involving prominent leaders of the PT, the
PMDB - its main political ally - and the foremost construction entrepreneurs. Additionally, the
alliance between the PT and the PMDB was severely weakened when some members from the
PMDB, notably the president of the Chamber of Deputies, supported the impeachment process
of Dilma. Meanwhile, the PT encouraged corruption investigations against PMDB leaders, in-
cluding the presidents of the Chamber of Deputies and Senators.
p. 12
Case: IA0015
If the deterioration during 2014 had been worrisome, the inability to articulate a stabilization
plan in 2015 ended the patience of most of the PT’s political allies. When Dilma’s popularity fell
below 20%, they felt there was enough support to begin an impeachment process for violating the
accountability and fiscal transparency law. Dilma was temporarily suspended in May 2016 and
finally dismissed in August 2016 and replaced by the vice president, Michel Temer.
MICHEL TEMER’S GOVERNMENT:
BELIEVE OR FEAR?
Michel Temer and his party, the PSDB, had two years until the next election to solve Brazil’s
short and long term problems. Henrique Meirelles, a veteran of the capital markets and the Lula
government, was put in charge of a “dream team” of technicians to resolve the fiscal deficit and
inflation urgently. They were well received by the financial markets, and the interest rate on pu-
blic debt fell 25%.
However, the popularity of the new president only topped 20%. Both Temer and almost half of
the new cabinet were also under investigation for corruption. A third of the new middle-class de-
mography, created in the previous decade, could no longer pay for health insurance or private
schools and had to return to public health and education.
The biggest challenge was to implement political and economic reform to overcome the structural
problems of fiscal deficit, productivity, and investment. To start with, a need for a reduction in
the tax and labor burden and complexity, and a reform of the pension system of state employees,
in addition to regulatory reforms and infrastructure investment, a better quality of education,
better conditions for entrepreneurship, and investment in research and developent.
The problem was to reach agreements between more than 20 political parties. Former President
Cardoso, who had achieved political agreements that allowed his government’s reforms, said:
“In Brazilian political life, there is a lack of thinking. There are missing unions; in the back-
ground, deep, greatness is missing. Politicians are only seen joining forces to win elections,
very well, and then what?”
The Congress approved the freezing of public spending in real terms for 10 years, in December
2016. However, a few months later, it approved the labor reform, which still did not reduce the
additional charges on salary for companies. Nevertheless, the reform did make working hours,
outsourcing, and discounts for absenteeism more flexible, among others. Inflation fell to 3% - 4%
annually, driven by the recession and lower monetary liquidity.
By mid-2017, the fiscal deficit had not reduced. Temer had not reached an agreement for pension
p. 13 reform or reductions in the structure of public expenditures, nor a tax reform. The private sec-
Case: IA0015
tor was once again invited to invest in oil, energy, and infrastructure, but there were no reforms
on laws or regulations that improved legal security conditions. Investment continued to fall, and
growth in 2017 would be zero. The approval of the Temer government had fallen below 10% as
justice advanced with evidence of its participation in corruption cases.
Temer, 76, said he had no more electoral ambitions after this government. He was willing to de-
vote all his efforts to reforms without speculation about his political future. Would your collabo-
rators think the same? Could the government reach agreements for deeper reforms in the year
that remained before the 2018 elections? What path would other political parties take? Would
they move forward with complex reforms and high political costs, or would they prefer to wait
for a new distribution of power in the 2018 elections?
REFERENCES
Almeida, M. (2009). Desafios da real política industrial brasileira do século XXI. (Challenges
of the real Brazilian industrial policy of the 21st century.) Text for discussion N ° 1452. Instituto
de Pesquisa Econômica Aplicada, Rio de Janeiro (Institute of Applied Economic Research, Rio
de Janeiro).
Baer, W. (2009). A Economia Brasileira (The Brazilian Economy), 3a. ed. São Paulo: Nobel.
Bethell, L. y Nicolau, J. ( 2008). Politics in Brazil, 1985–2002. En Bethell, Leslie, Ed. The
Cambridge History of Latin America. Volume IX: Brazil since 1930. Cambridge University Press:
Cambridge.
El País (29 March 2012). Brazil raises the urgency of diversifying its trade with China.
http://www.firjan.org.br/data/pages/2C908CEC30E85C950131B3B6A4A069BE.htm 22/03/13.
“Energy tariff for Brazilian industry is 50% above the world average Firjan System”.
Instituto de Pesquisa Econômica Aplicada (Institute of Applied Economic Research (2012)). Car-
ta de Cojuntura (Letter of Cojuncture), December. Rio de Janeiro.
Kupfer, D., Ferraz, J. C., & Carvalho, L. “50 años en 50: El largo y sinuoso camino del desarrollo
industrial de Brasil” (“50 years in 50: The long and winding road of industrial development in
Brazil”). Boletín Informativo de Techint (Techint Newsletter) No.330.
Lazzarini, S., Musacchio, A., & Bandeira-de-Mello, R. (2011). What Do Development Banks Do?
Evidence from Brazil, 2002-2009.
p. 14
Case: IA0015
O Estado de São Paulo (6 January 2013). “País cobra maior tarifa entre os emergentes” (“Coun-
try charges higher fare among emerging markets”). “Sobretaxa de importação protege setores
monopolistas” (“Import surcharge protects monopoly sectors”).
O Estado de São Paulo (8 January 2013) “O declínio da Petrobrás” (“The decline of Petrobras”).
Shayo, E. & Akira, F. (2011). Brazil 101. The 2011 Country Handbook. J.P. Morgan, São Paulo.
The Economist (5 August 2010). “Brazil’s development bank. Nest egg or serpent’s egg?”.
The Economist (6 August 2011). “Brazil’s industrial policy. Dealing with the Real”.
The Economist (14 January 2012). “Seeking protection. China has become Brazil’s biggest econo-
mic partner – and its most difficult one”.
The Economist (11 August 2012). “Investing in Brazil’s infrastructure. The road forsaken”.
The Economist (18 August 2012). “Brazil’s economy: Facing headwinds, Dilma changes course”.
The Economist (August 2012). “Untangling the “custo Brasil”.
The Economist (15 September 2012). “Higher education in Brazil. The mortarboard boom”. “Eco-
nomic policy in Brazil. Sparking recovery”
The Economist (January 2013). “Infrastructure in Brazil”. Daylight piracy.
The Economist (2 January 2016). “A former star of the emerging world faces a lost decade”.
The Economist (27 February 2016). “Industry in China. The march of the zombies”.
The Economist (27 February 2016). “Industry in China. The march of the zombies”. Valor Econó-
mico, agosto 9, 2012. “Los cinco principales bancos de Brasil concentran el 80 % de los créditos”.
www.eiu.com. “Economist Intelligence Unit. Country Analysis”.07/02/2016.
p. 15
p. 16
Section
Exhibits
1997-2002 2003-2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Population (millions) 173 184 189 192 194 195 197 199 201 203 204 206
Real GDP growth (%)

2.2 3.5 6.1 5.1 -0.1 7.5 4.0 1.9 3.0 0.5 -3.8 -3.6
Nominal GDP (US$ billion) 678 806 1,397 1,695 1,669 2,208 2,613 2,463 2,471 2,455 1,801 1,796
GDP per capita (US$) 3,951 4,368 7,371 8,850 8,621 11,293 13,236 12,363 12,292 12,109 8,810 8,713
GDP per capita (PPP US$) 8,994 10,763 12,595 13,309 13,350 14,300 15,082 15,491 16,073 16,286 15,695 15,210
Private consumption (% of GDP) 64 61 60 60 62 60 60 61 62 63 64 64
Government consumption (% of GDP)

20 19 19 19 20 19 19 19 19 19 20 20
Gross fixed investment and inventories (% of GDP) 18 17 20 22 19 22 22 21 22 21 18 15
Exports of goods and services (% of GDP) 10 15 13 14 11 11 11 12 12 11 13 12
Imports of goods and services (% of GDP) 12 12 12 14 11 12 12 13 14 14 14 12

components and growth
Exhibit 1. Real GDP, its
Exhibits
Section
Evolution of the real growth rate of the economy between 1950 and 2011
Source: Economist Intelligence Unit, IPEADATA
p. 17
p. 18
Section
Exhibits
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Lending interest rate (%) (1) 67.1 54.9 55.4 50.8 43.7 47.3 44.7 40.0 43.9 36.6 27.4 32.0 44.0 52.1
Deposit interest rate (%) (2) 22.0 15.4 17.6 13.9 10.6 11.7 9.3 8.9 11.0 7.9 7.8 10.0 12.6 12.4
Spread (%) 45.1 39.5 37.8 36.9 33.1 35.6 35.4 31.1 32.9 28.7 19.6 22.0 31.3 39.7
Money market interest rate (%) 23.4 16.2 19.1 15.3 12.0 12.4 10.1 9.8 11.7 8.5 8.2 10.9 13.4 14.1
Inflation - CPI (% a/a) 9.3 7.6 5.7 3.1 4.5 5.9 4.3 5.9 6.5 5.8 5.9 6.4 10.7 6.3
Real interest rate 12.9 8.0 12.7 11.8 7.2 6.1 5.5 3.7 4.8 2.5 2.1 4.2 2.4 7.3
Country risk EMBI+ (bps) 837 539 398 235 180 299 306 202 195 183 205 230 345 380
EEUU, tasa de interés bancaria (%) 1.11 1.49 3.38 5.05 4.99 2.12 0.26 0.23 0.17 0.19 0.11 0.10 0.17 0.52
USD 10 year interest rate 4.02 4.27 4.29 4.79 4.63 3.67 3.26 3.21 2.79 1.80 2.35 2.54 2.14 1.84
(1) Weighted average of bank loans at a fixed rate to individuals and companies. (2) Weighted average of rates on bank deposits of 30 days or more. (3)
indicators
monetary and financial
Exhibit 2. Main
SELIC rate adjusted by IPC
Exhibits Inflation (Inflación) and inflation target bands (bandas)
Section
Source: Economist Intelligence Unit y Banco Central do Brasil.
Interest rates Brazil and the United States (%)
p. 19
p. 20
Section
Exhibits
Consolidated fiscal results (% of GDP)

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Tax revenue 34.2 35.0 36.2 36.3 36.4 37.3 36.8 37.4 37.9 37.9 37.9 36.5 37.1 36.0
Tax expenditures 30.8 31.2 32.3 33.3 33.3 34.0 34.9 33.8 33.7 34.1 34.8 35.9 36.8 37.0
Primary fiscal balance 3.3 3.8 3.9 3.0 3.1 3.3 1.9 3.6 4.2 3.7 3.0 0.7 0.2 -1.0
Interests 9.0 7.0 7.2 6.7 5.9 5.3 5.1 5.0 5.4 4.1 4.7 5.4 8.5 5.4
Fiscal balance -5.6 -3.2 -3.4 -3.6 -2.8 -2.0 -3.2 -1.4 -1.2 -0.4 -1.6 -4.7 -8.2 -6.4
Government gross debt 71.5 68.0 67.0 55.5 56.7 56.0 59.2 51.8 51.3 53.7 51.5 56.3 65.5 69.9
indicators
Exhibit 3. Main fiscal
Exhibits Evolution of the balance and fiscal debt (1998 = 100)
Section
Source: Economist Intelligence Unit
Composition of public expenditure, (% of total expenditure)
p. 21
p. 22
Section
Exhibits
1997-2002 2003-2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Current Account Balance
-24.0 10.9 1.6 -28.2 -24.3 -75.8 -77.0 -74.1 -74.8 -104.2 -59.4 -23.5
(CA = 1 + 2 + 3 + 4)
Balance of trade (1) 0.1 37.4 40.0 24.8 25.3 18.4 27.6 17.3 0.3 -6.6 17.7 45.0
Exports 54.3 106.4 160.6 197.9 153.0 201.3 255.4 242.1 241.5 224.1 190.1 184.5
Imports -54.2 -69.0 -120.6 -173.1 -127.7 -182.8 -227.9 -224.9 -241.2 -230.7 -172.4 -139.4
Services: balance (2) -7.9 -6.9 -13.2 -16.7 -19.2 -30.0 -37.0 -39.8 -46.2 -48.1 -36.9 -30.4
Income: balance (3) -18.0 -23.1 -29.3 -40.6 -33.7 -67.1 -70.5 -54.3 -32.5 -52.2 -42.9 -41.1
Current transfers: balance (4) 1.8 3.5 4.0 4.2 3.3 2.9 3.0 2.8 3.7 2.7 2.7 3.0
Capital and Financial Account
21.0 1.1 89.1 29.4 71.3 125.2 137.9 93.0 66.7 111.7 57.2
(CFA = 5+6+7+8+9) 9) 26.0
Capital account (5) 0.3 0.6 0.8 1.1 1.1 0.2 0.3 0.2 0.3 0.2 0.5 0.3
Direct investment (6) 23.3 5.4 27.5 24.6 36.0 61.7 85.1 81.4 54.2 70.9 61.2 71.1
Brazilian direct investment abroad -1.4 -10.2 -7.1 -20.5 10.1 -26.8 -16.1 -5.2 -14.9 -26.0 -13.5 -7.8
Foreign direct investment in Brazil 24.7 15.5 34.6 45.1 25.9 88.5 101.2 86.6 69.2 96.9 74.7 78.9
Portfolio investment (7) 6.1 3.6 48.4 1.1 50.3 66.9 41.2 15.8 32.8 38.7 22.3 -19.2
Brazilian investment abroad -0.2 -0.6 0.3 1.9 4.1 -4.7 16.9 -7.4 -9.0 -2.8 3.6 0.6
Foreign investment in Brazil 6.3 4.2 48.1 -0.8 46.2 71.6 24.4 23.2 41.8 41.5 18.7 -19.8
Derivatives (8) -0.3 -0.2 -0.7 -0.3 0.2 -0.1 0.0 0.0 0.1 -1.6 -3.4 1.0
Other investments (9) -8.2 -8.3 13.1 2.9 -16.3 -3.5 11.3 -4.4 -20.7 3.4 -23.3 -27.2
Errors and omissions (E) -0.9 -0.6 -3.2 1.8 -0.3 0.4 2.3 0.1 -2.1 3.4 3.8
6.8
Currency reserve variation
(USD billion)
Exhibit 4. Balance of
payments, 1997-2015
4.9 11.4 87.5 3.0 46.7 49.9 63.2 19.1 -10.1 10.8 1.6
(CA+CFA+E) 9.2
Current account (% of GDP) -3.5 1.3 0.1 -1.7 -1.5 -3.4 -2.9 -3.0 -3.0 -4.2 -3.3 -1.3
Financial account (% of GDP) 3.1 0.1 6.4 1.7 4.3 5.7 5.3 3.8 2.7 4.5 3.2 1.4
Foreign direct investment (% of GDP) 3.6 0.9 2.0 1.5 2.2 2.8 3.3 3.3 2.2 2.9 3.4 4.0
Stock of international reserves 36.9 60.5 180.3 206.8 239.1 287.1 350.4 369.6 356.2 361.0 354.2 362.5
Stock of international reserves (% of GDP) 5.8 7.6 12.9 12.2 14.3 13.0 13.4 15.0 14.4 14.7 19.7 20.2
Source: Banco Central do Brasil (Central Bank of Brazil), IMF.
Exhibit 5. Evolution of the
international reserves of
the Central Bank of Brazil
Exhibits
Section
Source: Banco Central do Brasil.
p. 23
Exhibit 6. Evolution
of the Balance of
payments (% of GDP)
Exhibits
Section
Source: Banco Central do Brasil.
p. 24
of the nominal and real
exchange rate
Exhibits
Section
Source: Economist Intelligence Unit.
p. 25
of investment and
domestic savings
Exhibits
Section
Source: Economist Intelligence Unit.
p. 26
Exhibit 9. Brazilian
exports: volume, composition
and destination
Exhibits Exports by type of product (US $ billion)

Section
Composition of exports (% of total)
p. 27
Exhibits Destination of exports in 2011 (% of total)
Section
País 2011 2014
1. China 15 18
2. The United States 15 12
3. Germany 7 7
4. Argentina 8 6
5. The Netherlands 2 6
6. South Korea 5 5
7. Nigeria 4 3
8. Italy 3 2
9. Japan 4 3
10. India 3 3
Others 37 45
Composition of exports by product (% of total)
2014
1. Minerals 15 18
2. Oil and fuels 15 12
3. Vehicles and transport equipment 7 7
4. Soy and derivatives 8 6
5. Metallurgical productss 2 6
6. Sugar and ethanol 5 5
7. Chemical products 4 3
8. Meats 3 2
9. Machines and equipment 4 3
10. Coffee 3 3
Source: Data adapted from the Ministry of Development, Industry and Commerce of Brazil
(Ministerio de Desarrollo, Industria y Comercio de Brasil).
p. 28
p. 29
Section
Exhibits
Human Development Index (HDI) and indicators
Life
Life satisfaction
HDI Inequality
GDP per expectancy Poverty (10 very
Ranking index HDI Average
Country capita at birth rate (% of satisfied,
(187 GINI adjusted for years of
(US$ PPP) (years population) 0 nothing
Ctry) inequality schooling
(1) satisfied)
Brazil 10,367 84 0.539 0.519 73.5 7.2 21.4 6.8

6.5 - 21.9
Argentina 14 45 0.458 0.641 75.9 9.3 6.4
(2)
Chile 14 44 0.521 0.652 79.1 9.7 15.1 6.6
Mexico 14,258 57 0.517 0.589 77.0 8.5 47.4 6.8
China 6,828 101 0.415 0.534 73.5 7.5 13.4 4.7
India 3,296 134 0.368 0.392 65.4 4.4 27.5 5.0
South Af-
10,278 123 0.578 n/d 52.8 8.5 23.0 4.7
rica
Russia 18, 66 0.423 0.670 68.8 9.8 13.1 5.4
Spain 32, 23 0.347 0.799 81.4 10.4 21.8 6.2
United
evolution and comparison with
Exhibit 10. Social indicators:
selected countries
45, 4 0.408 0.771 78.5 12.4 15.0 7.2

States
(1) According to poverty line of each country. Last measurement available. (2) Lowest value of INDEC data. Highest value data from the UCA, Social Debt
Observatory.
Source: Human Development Reports United Nations, World Bank Development Indicators, Bureau of Labor Statistics, Instituto Nacional de Estadística (Statistics National Institute).
Exhibits Evolution of poverty and inequality
Section
(GINI coefficient 1 very unequal, 0 completely equal)
Source: IPEADATA, IBGE, Centro de Políticas Sociais da FGV (FGV Social Policy Center).
Composition of social groups by class (clase)
(% of total population)
Source: Centro de Políticas Sociais da FGV (FGV Social Policy Center)
p. 30
Exhibit 11. Composition
of the Congress in 2016
(October 2014 elections)
Exhibits Number of benches

Section Chamber
of
%
Party Party Senate Sen.
Dip.
Deputies’
Workers Party (PT) 88 17 13 16
Brazilian Democratic Movement Party (PMDB) 73 14 19 23
Social Democratic Party (PSD) 45 9 1 1
Progressive Party (PP) 39 8 5

6
Party of the Republic (PR) 32 6 4 5
Democratic Labor Party (PDT) 18 4 5 6
Communist Party of Brazil (PCdoB) 15 3 2

2
Brazilian Republican Party (PRB) 10 2 1

1
Green Party (PV) 8 2 1 1
Socialism and Freedom Party (PSOL) 3 1 1

1
Republican Party of the Social Order (PROS) 20 4 1

1
Brazilian Social Democracy Party (PSDB) 44 9 12 15
Democrats (DEM) 28 5 4 5
Brazilian Socialist Party (PSB) 24 5 4

5
Solidarity (SD) 22 4 1
1
Brazilian Labor Party (PTB) 17 3 6 7
Socialist Popular Party (PPS) 6 1 0 0
Christian Social Party (PSC) 12 2 1

1
Others 9 2 0 0
Total 513 81
p. 31
Exhibits
Section
Fuente: Economist Intelligence Unit, Congreso Nacional (National Congress), press clippings.
p. 32
Exhibit 12. Competitiveness
indicators in selected
countries
Exhibits Brazil Mexico Chile Korea China India USA

Section
WEF global competitiveness ranking (1 to 144) 48 53 33 19 29 59 7
WEF infrastructure quality ranking (1 to 144) 107 65 31 22 69 87 25
Ease of doing business (1 to 185) 130 48 37 8 91 132 4
Investment 2007-2012 (% GDP) 19 25 23 29 46 36 16
Savings 2007-2012 (% GDP) 18 22 27 32 46 30 14
PISA education quality ranking (1 to 65) 56 49 44 3 1-2 (1) n/d 31
I+D (%GDP) 1.1 0.4 0.4 3.3 1,4 0.8 2.7
Institutional development - 0 worse 100 better (World Bank)
Freedom of expression and public responsibility 64 54 81 69 5 59 86
Political stability and internal peace 46 26 65 55 25 13 64
Government Effectiveness 56 64 84 86 61 55 89
Regulatory quality 56 61 93 79 46 40 92
Rule of law 55 39 88 81 40 53 91
Corruption control 63 46 92 70 29 35 85
Source: WEF, Doing Business, World Bank, IMF.
p. 33
Exhibit 13. Industrial
electricity rate, 2011
Exhibits Selected countries, average per MWh in US$ at purchasing power parity
Section
Italy
Turkey
Brazil
Mexico
Germany
Colombia
India
South Korea
China
The USA
Source: Firjan
p. 34
Exhibit 14. Productivity
Indicators
Exhibits Evolution of labor cost and productivity in Brazil (Index 2003 = 100)
Section
Source: Based on data from the Economist Intelligence Unit.
Annual growth of labor and total productivity of Brazil and its main trading
partners (%)
Labor cost per unit

labor productivity Total factor productivity
produced in US$
2003-10 2011-15 2003-10 2011-15 2003-10 2011-15
Brazil 1.7 -0.4 1.4 -1.4 13.0 -2.7
Argentina 3.4 1.8 3.3 0.9 10.5 7.1
China 10.4 7.4 6.3 3.6 6.4 5.0
South Korea 3.1 1.2 1.7 0.8 1.3 4.6
The USA 1.5 0.8 1.4 0.8 0.9 2.0
Germany 0.5 0.6 0.3 0.5 5.3 -1.2
Source: adapted from Country Data of the Economist Intelligence Unit.
p. 35

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Case: IA0015

What went wrong?

1995-2010: CARDOSO AND LULA IN PURSUIT OF

STABILITY AND SOCIAL PROGRESS

Fernando Henrique Cardoso

“No one is safe, in a world of injustice. The poor must have

Luiz Inácio “Lula” da Silva

GLOBAL CRISIS 2008-2009 AND 2010 ELECTIONS

THE DELICATE POLITICAL BALANCE OF BRAZIL

THE ECONOMIC AND GROWTH CHALLENGES IN

Appreciation of the Real

The high cost of doing business in Brazil

INDUSTRIAL DEVELOPMENT: DREAMS AND

THE PATH CHOSEN BY DILMA IN 2011

2014 REELECTION AND ACCELERATED

MICHEL TEMER’S GOVERNMENT:

The Economist (August 2012). “Untangling the “custo Brasil”.

The Economist (January 2013). “Infrastructure in Brazil”. Daylight piracy.

www.eiu.com. “Economist Intelligence Unit. Country Analysis”.07/02/2016.

Real GDP growth (%)

Private consumption (% of GDP) 64 61 60 60 62 60 60 61 62 63 64 64

Government consumption (% of GDP)

Gross fixed investment and inventories (% of GDP) 18 17 20 22 19 22 22 21 22 21 18 15

Exports of goods and services (% of GDP) 10 15 13 14 11 11 11 12 12 11 13 12

Imports of goods and services (% of GDP) 12 12 12 14 11 12 12 13 14 14 14 12

Source: Economist Intelligence Unit, IPEADATA

SELIC rate adjusted by IPC

Source: Economist Intelligence Unit y Banco Central do Brasil.

Interest rates Brazil and the United States (%)

Consolidated fiscal results (% of GDP)

Source: Economist Intelligence Unit

Composition of public expenditure, (% of total expenditure)

Source: Banco Central do Brasil (Central Bank of Brazil), IMF.

Source: Banco Central do Brasil.

Source: Banco Central do Brasil.

Source: Economist Intelligence Unit.

Source: Economist Intelligence Unit.

Exhibits Exports by type of product (US $ billion)

Composition of exports (% of total)

Composition of exports by product (% of total)

2. Oil and fuels 15 12

3. Vehicles and transport equipment 7 7

4. Soy and derivatives 8 6

6. Sugar and ethanol 5 5

9. Machines and equipment 4 3

Brazil 10,367 84 0.539 0.519 73.5 7.2 21.4 6.8

45, 4 0.408 0.771 78.5 12.4 15.0 7.2

Composition of social groups by class (clase)

Source: Centro de Políticas Sociais da FGV (FGV Social Policy Center)

Exhibits Number of benches

Workers Party (PT) 88 17 13 16

Brazilian Democratic Movement Party (PMDB) 73 14 19 23

Social Democratic Party (PSD) 45 9 1 1

Progressive Party (PP) 39 8 5

Democratic Labor Party (PDT) 18 4 5 6

Communist Party of Brazil (PCdoB) 15 3 2

Brazilian Republican Party (PRB) 10 2 1

Socialism and Freedom Party (PSOL) 3 1 1

Republican Party of the Social Order (PROS) 20 4 1