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World Bank: Brazil should extend social advances of the last decade

24/07/2016 08:19

A recent World Bank report concluded that Brazilians should value, preserve and improve social and environmental advances made in the past 13 years but have to seek consensus in the whole society to promote deep reforms to improve the political system, gain efficiency in the policies that transfer resources to the poorest, eradicate imbalances in the state pension system, promote a greener economy and increase productivity of labour and companies.

Published in May, the World Bank's Brazil systematic country diagnosis (SCD), “Retaking the Path to Inclusion Growth and Sustainability” , was written based on extensive travels in Brazil and the analysis of recent data by over 60 researchers who focused on over 15 sectors of activities in the country.

Recognising the advances in several fronts, the SCD asks the question in the face of end of the commodities boom in recent years, the deepening of the international financial crisis and Brazil's own political crisis: “some Brazilians are now asking whether the gains of the past decade might have been an illusion, created by the commodity boom, but unsustainable in today’s less forgiving international environment”.

The answer is a definite “NO”.

“There is no reason why the recent socioeconomic gains should be reversed; indeed, they might well be extended with the right policies,” the report concludes.

However, the report authors concluded that several issues need to be tackled, most of them complex because the current crisis requires “substantial shifts in Brazil's growth model and its fiscal policies”.

The SCD analyses the causes of the Brazil's crisis – which include inefficient tax and payroll breaks for companies; falling revenues because of a slowing commodities boom and a tax system based on consumer spending instead of income; declining investor confidence; small productivity gains and badly managed infrastructure projects – led to strong decline in investor confidence which resulted, in 2014 and 2015, in a sharp decline in the government's capacity to induce investments and a strong reduction of private sector investment itself.

At the same time, the team of researchers concluded that Brazil's advances and its political and economic position in the world are too important for it to abandon current welfare and foreign policies.

Aside the Bolsa Família which reduced poverty and hunger in a way never seen before the country, the World Bank recognised as important recent policies for minimum salary and pension increases, strong job creation, policies for protecting the environment and promoting the green economy, the increase in education spending and policies focused on the more vulnerable such as women, Afro-descendants and indigenous peoples “many of whom still suffer discrimination and are particularly subject to violence and insecurity, despite considerable government efforts in recent years, which have begun to bear fruit”.

In conclusion the researchers write: “The choice for Brazil will be whether to strengthen the fiscal foundations of the macroeconomic framework, by reducing transfers to the well-off, or to introduce spending cuts that fall disproportionately on the poor and undo some of the social progress of the past decade”.

While mentioning specific policy shift – a reform of the pension system which (excluding the rural pensions which were introduced in 1988 as a semi-contributive pension) currently transfers a significant amount of resources to the well off; improvements in education, research and development and the business environment to promote productivity gains; carry out better planned infrastructure projects and implement more coherent environmental and urban development policies – the reports identifies three requirements for Brazil to implement the needed shifts in its development strategy, without abandoning current welfare, social and environmental policies that are still needed to reduce inequality.

The first requirement is to creation of sufficient productive and well-remunerated jobs to provide employment opportunities for all Brazilians of working age, which means investments to improve education and productivity of companies and labourers.

The second requirement is for continued poverty reduction and shared prosperity to be more efficient and better-targeted government spending, which means improving access to quality public services and increase the 'fiscal space' to continue or increase transfers to the poor and most vulnerable.

The third requirement for improved livelihoods and economic opportunities is the smarter management of Brazil’s natural resources and the better mitigation of environmental pollution and the risk of natural disasters.

The World Bank's Brazil representative, Martin Raiser, concluded: "Brazil’s structural problems are long standing. Their resolution can no longer be delayed even if the right way forward remains debated. Brazil has produced important policy innovations built on a broad political consensus and strong monitoring and evaluation before – the Fiscal Responsibility Law, the Bolsa Familia program, or the decline of deforestation in the Amazon are prominent examples. There is every reason to hope and believe it can do so again."

Click here to know more about the report "Retaking the Path to Inclusion Growth and Sustainability".

Click here to read Martin Raiser's article.