This year is definitely a big year for Brazil. The country will host the World Cup after 54 years, there is a presidential election coming and a lot of expectations on whether the last year protests are going to repeat or not. I wouldn't say there is a turmoil or volatile environment in the country right now. I'd put it more like a feeling that people are longing for change.
There is surely a notion now widespread that the country lost a lot of opportunities in attracting foreign investment when it was abundant and when Brazil was Latin America's darling. This feeling was long ago vented by more orthodox economists when president Dilma begun to fight the high interest rates. A fight which she has been defeated last year.
Now it seems that the pessimism is a consensus. We should not grow in 2014 more than the expected 2.3% that we should achieve in 2013. The government expenditures are likely to rise in an election year, bringing together the inflation rates. The reforms and changes long needed to attract investment and improve the education, judicial, political and health care systems will be once again delayed and we will be left with more and more demands for the next president or the next Dilma Rousseff's term in power.
The forecasts aren't necessarily gloom but neither they are exciting. It seems the country is running on auto pilot. I believe former president Fernando Henrique Cardoso, in an article for O Globo, captured the right needs for the country right now. It is mandatory that we increase productivity, that we establish new and strategic free trade treaties with countries that are recovering economically, such as the United States, and struggle to maintain Brazil's importance over South America. The Worker's Party ideology played a major role, says Cardoso, in delaying this pragmatic move towards market integration and foreign investment attraction.
I agree with that in general. Brazil is likely to be stuck in the current level of development and income if it doesn't invest in education and improve the tools for private investment. Ideology has been the worst enemy of our economic policy the last few years, this is true. There are somethings, though, that deserve consideration and contextualization.
Personally I believe that the Worker's Party experience through Lula's two consecutive terms as a president gave the impression that the government lost the chance to grow bigger, and to increase the national power of Brazilian companies. The main point at the time was the sense that during the crisis, the country bended once again to the financial markets (mostly responsible for the crisis itself) and increased the interest rates was the wrong move. I heard more than once from economists to politicians that the country, back in 2008, had lost a window of opportunity to slice interest rates to international levels.
This certainly changed with Dilma. The president aimed straight to the interest rates and had the feeling she won the battle. In 2011, the first year of decreases, inflation was kept down, and the financial system survived. There wasn't a huge increase in the families debt and the economy kept running. But when inflation eventually came, the government refused to take a step back and allow for a spike in interest rates. It rather took a different, non-conventional, path, decreasing taxes for specific sectors. This was the first "hubris" mistake I would say Dilma has learned the hardest way last year.
Another thing that changed during Dilma's office was the privatization. Since the privatization of state companies during the Fernando Henrique Cardoso term, there were a lot of opposition against the private initiative in Brazil. This is not at all unjustified. The first auctions of public goods privileged the price the companies would pay for the government instead of the price they would charge their customers for their services. This created a lot of aversion to this model of administration as winning companies charged higher fares for their services. Under the Lula's government some roads were auctioned following the exact opposite model (privileging customer's fares rather than the government prize) but this also had the inconvenience of making it difficult for companies to fulfill their investment commitments (specially under Brazilian bureaucracy) and was also rejected as a model.
Dilma had then the mission to change the model, offering the best of the two worlds: a fair price for the users of the conceded services and the guarantee that the investments were to be made. The word privatization was never again used, after Cardoso's term, and was substituted for concession, which should mean that the government would still have a regulating power and would be ultimately the owner of the public good. A lot of discussion was made on the return that the market required for the investments (considered in the beginning to high on the part of the government and too low on the part of the market). Another topic was the know-how requirement for the companies that would take part on the auctions. After first big airport concession in São Paulo, Brasília and Belo Horizonte, where some of the winners didn't have a lot of experience with busy and huge airports the rules of auctions were also changed.
Making a long story short, all of this contributed for the delays on the auctions. While there were some unpredictable things (considering that the government was also learning from the process), the ideology played also a major role here. If the government had been less tough in her first concern that private companies were demanding too much return for their investment, perhaps the auctions would have occurred during a time Brazil was still attracting foreign investment. The long discussion and the indefinition made the country fold when it had the best hand.
Both the notion that inflation should be a higher concern than low interest rates at all costs, and that there is a serious need to make the private concessions happen are in the speech of Ministry of the Presidential Chief of Staff, Minister Gleisi Hoffmann today on an interview to Folha de S. Paulo.
What to expect, then, from this very busy year? I believe there will be some building up of the Brazilian stock markets (though this is more a hope than a prediction) after the tragedy of 2013 and hopefully the World Cup will happen without major problems, but not without protests (there is a big one already scheduled for january 25th, called "No World Cup"). The doubt is over the presidential election and the next year. If the elections were today, Dilma would win. The big question in this case would be whether she would be committed more to an ideological administration than to the pragmatism that I believe is needed right now for the country.
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