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Tue. September 25, 2018
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New Issue of International Affairs Forum: Interview with Prof. Werner Baer: BRIC countries
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In this interview with Professor Baer, discussion focuses on economic development successes and challenges facing Brazil. Brazil’s economic slowdown marked by high interest rates, a low investment GDP gap. Moreover, impacts and reasons related to low investment in industry and technology, and slow infrastructure development are expanded upon. Brazil’s Gini coefficient indicates progress in inequality but that is partially due to lower inflation and a number of issues still exist. The interview also discusses the impacts of higher education issues on economic development, inequality, and job opportunities. IA-Forum: In the first quarter of this year, Brazil grew by a disappointing 0.6% and in May, recorded its first trade deficit in years. What factors have led to Brazil's current economic situation? Professor Werner Baer: First of all, there’s been a very low investment GDP gap and that continues. There’s also very little investment going on right now. The growth rate is approximately 4% but Brazil’s investment GDP ratio has fluctuated between 16 and 18 percent over the last two decades, while in many Asian countries there’s a 30 to 40 percent ratio. With the high interest rate which prevailed in Brazil until recently, a huge amount of money flowed into Brazil, not for investment but rather just to make use of the higher interest rate. This money caused the exchange rate to appreciate, and this appreciated exchange rate made imports cheaper and cheaper. Many industrial sectors were hit very hard by that. Also, with the appreciated exchange rate, Brazilian manufacturing goods were not competitive internationally and this affected the growth rate. It didn’t affect overall exports because there was a huge demand for commodities like soy beans and iron ore which, until very recently, caused the balance of payments to be quite positive in spite of the appreciated exchange rate. Finally, Brazil hasn’t kept up with a need to construct infrastructure. There are a huge number of infrastructure projects but it’s been very slow in getting them applied. That’s possibly because of the convoluted bureaucratic process in releasing money that’s already has been approved for the construction of football stadiums, hotels, new roads, and so on. In addition, I think what’s also causing the slow domestic sales of products is that over the last decade is that the Brazilians have discovered the beauties of going into debt. The credit card culture has spread in the urban sector very rapidly and people have been going into debt to buy automobiles and other goods. They now suddenly realize that the burden of having to service the debt they incurred is pretty high and that causes them to decrease expenditures on all sorts of consumer durables. A combination of all these factors accounts for the mediocre growth rate in the last three years. IA-Forum: Some place part of the blame on government expansion. Do you agree? Prof. Baer: No. As a matter of fact, as I just mentioned, slowness of infrastructure expenditures on modernizing ports, modernizing roads and so on is what I partially blame for the slow growth rate. The government is trying to build these with concession contracts through the private sector. They’ve done this in the last couple of years, and once that takes hold, that might contribute to higher rates of growth. So I would say that the presence of the state is declining in the sense that the state is not in charge of projects such as the modernization of ports; they’d rather ferret it out to the private sector through concession contracts. See the rest in the latest issue of International Affairs Forum Taylor & Francis.

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