Brazil Bric

Brazil under Lula: Off the Yellow BRIC Road

In 2001 Goldman Sachs had created the term “BRIC” to denote the group of emerging economies with high growth potential, including Brazil, Russia, India and China. But Brazil was the underperformer of the group and had some of the worst business-environment indicators among BRIC countries.

“The second Lula administration is committed to a strategy of faster economic growth and higher living standards based on investment promotion, redistributive policies and higher levels of education”.

For that Lula solicited his ministers for tax-reform proposals and fiscal incentives that could boost capital investments, mostly in infrastructure, to achieve growth rates of 5% per year.

During his first term Lula reduced poverty and income inequality. Lula´s cash-transfer programs reduced the number of poor people significantly and brought down the Gini coefficient of income inequality to its lowest level in recent history. Lula maintained a policy of price and exchange rate stability, increased government savings, paid off the balance owed to the IMF and managed to reduce interest rates steadily.

In order to grow like China and India, Brazil would have to tackle “the Brazil cost”:

* To reduce the size and importance of the informal sector

* Correct some macroeconomics deficiencies (e.g the high real interest rate and a high government debt to GDP ratio)

* Reduce red tape

* Improve the quality of public services (e.g education, justice and security)

* Develop new infrastructure

In 2006 Brazil was the sixth-largest country by area and the eighth-largest economy in the world. It had a population of 186 million people, making it the fifth most-populous country in the world. Brazil was also one of the most unequal countries in the world; it had a Gini coefficient of 0.56 in 2005 the worst in South America and one of the worst in the world.

Between 1968 and 1976 Brazil was under the military regime that introduces...