Brazil on the World Economic History Congress (Kyoto 2015)

Economic historians from around the world met in Kyoto from 3 to 7 of August. As a major event, it is a good thermometer on what is driving the attention of the academic community. How did Brazil do?

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Openning cerimony

Taking an objective approach, we realize that Brazil leads the interest in Latin America, as it would be expected but is far behind the other BRICs. Let’s see.

Brazil was the subject of 17 papers. Comparing with other countries in Latin America, Brazil was on the top of the list. Mexico came second with 10 papers and Argentina was subject of 9. However when comparing with the BRICs, Brazil falls way behind. As it could be expected, China leads, with 67 papers. India follows with 43 and Russia with 24.

Papers talking about Brazil in comparison with other countries (Latin America and BRICs)

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What period did they talk about

Most papers chose the 20th century but the interest in the 19th century was also remarkable. Subjects of this period were: slavery, sugar, the introduction of statistics science and the impact of German immigration in education.

Where did the papers come from

Another interesting stats is to see who is thinking about Brazilian economy. Of course, locals are number one, and no surprise in having the United States as a second source of articles. Brazil (8), the USA (3) and France (2) were the countries that most contributed with papers about Brazil. The University of São Paulo (4) is the leading source among all institutions, seconded by Paris Sorbonne University (2).

Origin of the papers

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Summary of papers that had Brazil as a subject

Author University Paper
Alexandre Macchione Saes University Sao Paulo (Brazil) Electric power and diplomacy: US-Brazil relations in the Brazilian electric sector, 1945-1954
Daniel Strum University of São Paulo (Brazil) The Coevolution of Various Mechanisms Governing the Expansion of Commercial Agency Relations: Jews and Conversos along the sugar route revisited (Brazil, Portugal and the Netherlands, 1595–1618)
Sigismundo Bialoskorski University of Sao Paulo (Brazil) “Cooperatives organizations in Latin America economic growth: the case of Brazil”
Marly Kamioji University of Sao Paulo (Brazil) Origins of the nuclear program in Brazil
Irineu de Carvalho Filho Universidade de Sao Paolo (Brazil) Education Performance: was it all determined 100 years ago? Evidence from Sao Paolo.
Eustaquio Reis IPEA (Brazil) “Long Run Perspectives on Regional Inequalities in Brazil, 1872-2000”
André Villela Fundaçao Getulio Vargas (Brazil) Half a century of Brazilian ‘general’ economic history textbooks: An appraisal.
Luiz-Carlos Soares Federal University of Rio de Janeiro (Brazil) “Sebastiâo Ferreira Soares and the introduction of statistical science in nineteenth Century Brazil”
Filipa Ribeiro daSilva University of Macau (China) Impact of Slave Trade in the Portuguese and Brazilian Economies: an assessment
Hildete de Moraes Vodopives Université Paris-Sorbonne (Paris IV) (France) Contemporary challenges of the Brazilian dairy industry.
Hildete de Moraes Vodopives Université Paris-Sorbonne (Paris IV) (France) FDI in Brazil in the 1990s and 2000s; macro factors impacting the internationalization of Vale
Bruno Gabriel Witzel de Souza Georg-August-Universität (Germany) “Immigration and the Path-Dependence of Education: German-Speaking Immigrants, On-the-Job Skills, and Ethnic Schools in São Paulo, Brazil (1840-1920)”
Hiromi Shioji Kyoto University (Japan) The Luxury Vehicle Market in Brazil: Different Types of Development
Lee Alston University of Colorado, Boulder (Sweden) Economic Backwardness and Catching Up: Brazilian Agriculture, 1964–2014
Gail Triner Rutgers University (United States of America) Regulatory regimes for petroleum in Brazil
Anne Hanley Northern Illinois University (United States of America) “Public finance and social investment in Brazil’s first century of independence, 1822-1930”
Aldo MUSACCHIO Brandeis University – Brandeis International Business School (United States of America) The top-management of State-owned enterprises: the case of Brazil.

The papers can be downloaded from the website of WEHC until de end of the month.

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Business Newswires Analysis: Petrobras overhaul calls for much more than corruption clean-up

The Petrobras scandal: are we facing a complex case of corruption with politics prying associated with lousy management? What will it take to get Petrobras on track? This Business Newswire analysis makes good points.

Petrobras’ decision to take a massive $17 billion (11.20 billion pound) write-down to account for overvalued assets and corruption-related costs is only the start of a broad overhaul needed to revive Brazil’s troubled state-owned oil company.

While many have focussed on the $2.1 billion, or 12 percent of the write-down, related to money siphoned off in a price-fixing, bribery and political-kickback scheme – Brazil’s biggest-ever corruption scandal – it is the remaining $15 billion that calls for greater attention.

Those write-offs reflect bad investment decisions, flawed execution, political interference and falling oil prices, Petroleo Brasileiro SA <PETR4.SA> acknowledged when it released audited 2014 results on Wednesday.

Business Newswires : euronews : the latest international news as video on demand.

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Ricardo Amorim’s point of view on doing business in Brazil

For those who want a brief introduction to doing business in Brazil I recommend this  4 minutes video in English. Ricardo Amorim is one of Brazil´s most influential economist according to Forbes magazine and Klout.com.

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The Economist on Brazilian Protests

Protests in Brazil

The wisdom of crowds

After massive demonstrations against her, Dilma Rousseff will struggle to relaunch her presidency

DILMA ROUSSEFF, Brazil’s president, expected the anti-government protests on March 15th to be big. She convened a meeting of a crisis group at her official residence to monitor them. But nobody, including the organisers, imagined they would be as massive as they turned out to be. Police in São Paulo put the size of the crowd on Avenida Paulista, the preferred venue for such gatherings, at more than 1m; Datafolha, a pollster, counted 210,000. Either way, it was the biggest political demonstration in the country’s biggest city since the diretas já (“elections now”) movement that helped end military rule in 1985. Overall, police estimated that 2.2m people turned out in dozens of cities across all 27 states. That dwarfs the number who took to the streets on any single day in June 2013, the most recent occasion when Brazilians vented their anger at politicians en masse.

Trade unions, which had organised (much smaller) pro-Dilma demonstrations two days earlier, dismissed the protesters as privileged white people. Many were not. “I am black, poor and want Dilma out,” declared a demonstrator from one of the nine mobile stages along Avenida Paulista. Many wore the national football team’s yellow-and-green jerseys. Opposition politicians wisely stayed away. They realised that their presence would obscure the bottom-up message and reinforce the government’s claim that behind the protests were sore losers of last October’s elections, won by Ms Rousseff and her left-wing Workers’ Party (PT).

The grievances of 2013 were diffuse. Today’s are directed squarely at Ms Rousseff and the PT. Some protesters—about a quarter on Avenida Paulista, according to one poll—want her to be impeached over a multi-billion-dollar bribery scandal at Petrobras, the state-controlled oil giant. Most others simply want to show that they are fed up with sleaze and economic mismanagement, which has pushed up inflation and is likely to trigger a recession this year. A vocal fringe called for military intervention—but was shouted down.

Impeachment is unlikely. A serving president can be removed only for misdeeds committed during his or her current term of office. The focus of the Petrobras investigations is alleged bribery that took place well before Ms Rousseff began her second term, on January 1st. Besides, she has not been personally implicated.

The president’s real worry is that public anger plus parliamentary obstruction will thwart her plans for her second term, the most important of which is a correction of the economic course that she set in her first. Her working-class supporters hate the austerity needed to trim the budget deficit—a scary 6.75% of GDP—and avoid a downgrade of Brazil’s credit rating. Pro-Rousseff demonstrators railed against cuts in entitlements and condemned her finance minister, Joaquim Levy, as a “liberal infiltrator”. In February lorry drivers blocked roads in protest against rising fuel prices and other costs. The government caved in to many of their demands.

Pro-government parties command majorities in both houses of Congress. But many of Ms Rousseff’s allies are opportunistic at the best of times. The Petrobras scandal and the president’s plummeting popularity—just 13% of voters think she is doing a good job—make them even more prone to defect. The Supreme Court has approved criminal investigations of 34 sitting congressmen, all but one of whom belong to the ruling coalition. They include the speakers of the lower house and Senate, both members of the Party of the Brazilian Democratic Movement (PMDB). All deny wrongdoing.

The more they worry about clearing their names, the less likely they are to vote for unpopular economic measures. Renan Calheiros, the Senate president, formerly a loyal backer of Ms Rousseff, recently threw out of the chamber a presidential decree that would have ended some payroll-tax breaks. That forced her to resubmit it as a fast-track bill. Last week Congress came close to overturning presidential vetoes of two potentially budget-busting bills. One concerned adjustments to income-tax brackets, the other social-security charges for domestic workers. Majorities voted against the president, but they were not large enough to force the bills through.

After a long delay, Congress approved this year’s budget on March 17th. This will help Mr Levy to keep his promise to achieve a primary surplus (before interest payments) of 1.2% of GDP. But the string of near-defeats means he will need to tread carefully. He will have to consult the legislature extensively on economic decisions. As a result, the fiscal adjustment will take longer than he hopes. With luck, that will not trigger a downgrade.

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Bradesco sees Brazilian GDP contracting -2,0% in 2015

Bradesco, one of Brazilians leading banks,  just revised the Brazilian real GDP growth forecast to -2.0% in 2015, from -0.7%.

Changes reflect the worsening outlook for interest rates and inflation. They are also revising  2016 GDP estimate to 0.8%, from 1.4%.

At the beginning of the year, consensus was still at a positive level (0.5%).

That is not all: IBGE will revise its entire GDP data series back to the 1990s, which will likely affect analysts estimates once again.

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Brazil in The Economist

Brazil

In a quagmire

Latin America’s erstwhile star is in its worst mess since the early 1990s

CAMPAIGNING for a second term as Brazil’s president in an election last October, Dilma Rousseff painted a rosy picture of the world’s seventh-biggest economy. Full employment, rising wages and social benefits were threatened only by the nefarious neoliberal plans of her opponents, she claimed. Just two months into her new term, Brazilians are realising that they were sold a false prospectus.

Brazil’s economy is in a mess, with far bigger problems than the government will admit or investors seem to register. The torpid stagnation into which it fell in 2013 is becoming a full-blown—and probably prolonged—recession, as high inflation squeezes wages and consumers’ debt payments rise (see article). Investment, already down by 8% from a year ago, could fall much further. A vast corruption scandal at Petrobras, the state-controlled oil giant, has ensnared several of the country’s biggest construction firms and paralysed capital spending in swathes of the economy, at least until the prosecutors and auditors have done their work. The real has fallen by 30% against the dollar since May 2013: a necessary shift, but one that adds to the burden of the $40 billion in foreign debt owed by Brazilian companies that falls due this year.

Escaping this quagmire would be hard even with strong political leadership. Ms Rousseff, however, is weak. She won the election by the narrowest of margins. Already, her political base is crumbling. According to Datafolha, a pollster, her approval rating fell from 42% in December to 23% this month. She has been hurt both by the deteriorating economy and by the Petrobras scandal, which involves allegations of kickbacks of at least $1 billion, funnelled to politicians in her Workers’ Party (PT) and its coalition partners. For much of the relevant period Ms Rousseff chaired Petrobras’s board. If Brazil is to salvage some benefits from her second term, then she needs to take the country in an entirely new direction.

Levy to the rescue?

Brazil’s problems are largely self-inflicted. In her first term Ms Rousseff espoused a tropical state-capitalism that involved fiscal laxity, opaque public accounts, competitiveness-sapping industrial policy (see article) and presidential meddling in monetary policy. Last year her re-election campaign saw a doubling of the fiscal deficit, to 6.75% of GDP.

To her credit, Ms Rousseff has at least recognised that Brazil needs more business-friendly policies if it is to retain its investment-grade credit rating and return to growth. This realisation is personified by her new finance minister, Joaquim Levy, a Chicago-trained economist and banker and one of the country’s rare economic liberals (see article). However, Brazil’s past failure to deal promptly with macroeconomic distortions has left Mr Levy to grapple with a recessionary trap.

To stabilise gross public debt, he has promised a whopping fiscal squeeze of almost two percentage points of GDP this year. Part of this is coming from the removal of an electricity subsidy and the reimposition of fuel duty. Both measures have helped to push inflation to 7.4%. He also plans to curb subsidised lending by public banks to favoured sectors and firms.

Ideally, Brazil would offset this fiscal squeeze with looser monetary policy. But because of the country’s hyperinflationary past, as well as more recent mistakes—the Central Bank bent to the president’s will, ignored its inflation target and foolishly slashed its benchmark rate in 2011-12—the room for manoeuvre today is limited. With inflation still above its target, the Central Bank cannot cut its benchmark rate from today’s level of 12.25% without risking further loss of credibility and sapping investor confidence. A fiscal squeeze and high interest rates spell pain for Brazilian firms and households and a slower return to growth. What makes this adjustment perilous is the political fragility of Ms Rousseff herself. On paper she won a comfortable, though reduced, legislative majority in the October election. Yet the PT is already grumbling about Mr Levy’s fiscal policies—partly because the campaign did not lay the ground for them. Ms Rousseff suffered a crushing defeat on February 1st in an election for the politically powerful post of head of the lower house of Congress. Eduardo Cunha, who vanquished the PT’s man, will pursue his own agenda, not hers. Not for the first time, Brazil may be in for a period of semi-parliamentary government.

The country thus faces its biggest test since the early 1990s. The risks are clear. Recession and falling tax revenue may undermine Mr Levy’s adjustment. Any backsliding may in turn prompt a run on the real and a downgrade in Brazil’s credit rating, raising the cost of financing for government and companies alike. Were Brazil to see a repeat of the mass demonstrations of 2013 against corruption and poor public services, Ms Rousseff might be doomed.

From weakness, opportunity

Yet the president’s weakness is also an opportunity—and for Mr Levy in particular. He is now indispensable. He should build bridges to Mr Cunha, while making it clear that if Congress tries to extract a budgetary price for its support, that will lead to cuts elsewhere. The recovery of fiscal responsibility must be lasting for business confidence and investment to return. But the sooner the fiscal adjustment sticks, the sooner the Central Bank can start cutting interest rates.

More is needed for Brazil to return to rapid and sustained growth. It may be too much to expect Ms Rousseff to overhaul the archaic labour laws that have helped to throttle productivity, but she should at least try to simplify taxes and cut mindless red tape. There are tentative signs that the government will scale back industrial policy and encourage more international trade in what remains an over-protected economy.

Brazil is not the only member of the BRICS quintet of large emerging economies to be in trouble. Russia’s economy, in particular, has been battered by war, sanctions and dependence on oil. For all its problems, Brazil is not in as big a mess as Russia. It has a large and diversified private sector and robust democratic institutions. But its woes go deeper than many realise. The time to put them right is now.

Brazil’s coming recession

The crash of a titan

Brazil’s fiscal and monetary levers are jammed. As a result, it risks getting stuck in an economic rut

IT IS easy for a visitor to Rio to feel that nothing is amiss in Brazil. The middle classes certainly know how to live: with Copacabana and Ipanema just minutes from the main business districts a game of volleyball or a surf starts the day. Hedge-fund offices look out over botanical gardens and up to verdant mountains. But stray from comfortable districts and the sheen fades quickly. Favelas plagued by poverty and violence cling to the foothills. So it is with Brazil’s economy: the harder you stare, the worse it looks.

Brazil has seen sharp ups and downs in the past 25 years. In the early 1990s inflation rose above 2,000%; it was only banished when a new currency was introduced in 1994. By the turn of the century Brazil’s deficits had mired it in debt, forcing an IMF rescue in 2002. But then the woes vanished. Brazil became a titan of growth, expanding at 4% a year between 2002 and 2008 as exports of iron, oil and sugar boomed and domestic consumption gave an additional kick. Now Brazil is back in trouble. Growth has averaged just 1.3% over the past four years. A poll of 100 economists conducted by the Central Bank of Brazil suggests a 0.5% contraction this year followed by 1.5% growth in 2016.

Both elements of that prediction—the mild downturn and the quick rebound—look optimistic. The prospects for private consumption, which accounted for around 50% of GDP growth over the past ten years, are rotten. With inflation above 7%, shoppers’ purchasing power is being eroded. Hefty price rises will continue. Brazil is facing an acute water shortage; since three-quarters of its electricity comes from hydroelectric dams, this is sapping it of energy. To avoid blackouts the government plans to deter use by raising prices: rates will increase by up to 30% this year. With the real losing 10% of its value against the dollar in the past month alone, rising import prices will bring more inflation.

There is little hope of disposable income keeping pace. One reason is that Brazilian workers’ productivity does not justify further rises. In the past ten years wages in the private sector have grown faster than GDP; cosseted public-sector workers have done even better (see chart 1). Since Brazil’s minimum wage is indexed to GDP and inflation, a recession will freeze real pay for the millions who earn it.

Austerity will bite, too, as Brazil’s new finance minister, Joaquim Levy, tries to balance the books. Higher taxes on fuel are being phased in, a blow for a car-loving country. If Mr Levy reforms the generous state pension, the incomes of older Brazilians will stall.

Debt payments add to the woes. Total credit to the private sector has jumped from 25% of GDP to 55% in the past ten years. With total household debt at around 46% of disposable income, Brazilian households are much less indebted than those in Italy or Japan. Yet the price of this borrowing is sky-high. Four-fifths of it is punishingly costly consumer credit (the average rate on new lending is 27%, according to the Central Bank). Once hefty principal payments are added in, debt service takes up 21% of disposable income. With the economy slowing and the Central Bank reluctant to cut interest rates because of high inflation, consumers will feel the pinch, says Arthur Carvalho of Morgan Stanley. On February 25th a survey put consumer confidence at a ten-year low.

There are few compensating sources of demand. Investment, which rose in eight of the ten years to 2013, often substantially, will sink in 2015. Petrobras, the partially state-owned oil giant that is Brazil’s largest investor, is mired in a corruption scandal that has paralysed spending: the affair may cost up to 1% of GDP in forgone investment. On February 24th Moody’s, a credit-rating agency, cut its debt to junk status; if Petrobras fails to publish audited results soon it may be unable to borrow at all.

Exporting is no answer, despite the falling real. Five countries—China, America, Argentina, the Netherlands and Germany—buy 45% of Brazil’s exports. Ten years ago these economies’ average GDP growth, weighted by their heft in Brazilian trade, was 12%; this year 5% would be good.

Yet the biggest worry is not that Brazil has a bad year, but that its broken policy levers mean that it gets stuck in a rut. Brazil spent 311.4 billion reais (6% of GDP) on interest payments in 2014, a 25% increase on 2013. This means that even if Mr Levy’s fiscal drive works—he is aiming for a primary surplus of 1.2% of GDP—Brazil will be nowhere near the black. The state’s outgoings have proved hard to control, with benefits payments rising despite falling unemployment. In a recession it will be harder still.

Brazil’s parlous finances leave no room for debt-financed stimulus. At 66% of GDP its gross public debt is the highest of the BRIC countries. Its bonds yield 13%—more than Russia’s. Rates could rise further. Fitch, a credit-rating agency, puts Brazil one notch above junk, but it has more debt, bigger deficits and higher interest rates than most countries in that category. If growth evaporates, a downgrade would be a certainty, raising debt costs even more.

Such predicaments are not uncommon, but Brazil’s monetary problems are. The governor of the Central Bank, Alexandre Tombini, must choose between two nasty paths. The first is a hard-money approach: keeping interest rates high despite the weak economy. This would prop up the real and boost the bank’s inflation-bashing credentials. But it is not just households that are hurt by high rates; firms are, too. In aggregate the big Brazilian firms Fitch rates have had negative cashflow since 2010. They have plugged the gap by running down savings and issuing debt. Borrowing is up by 23% in five years. With the risk of default rising, a fifth of these firms face a downgrade, in many cases imminent.

In reality, a tough monetary stance would have to be softened by an extension of Brazil’s lavish financial subsidies. State-owned banks like BNDES, a development bank, and Caixa Econômica Federal, a retail one, made 35% of loans in 2009. Today their share is 55%. Since many Brazilian firms cannot pay private market rates (the average rate for new corporate loans is 16%) BNDES lends at a concessionary rate, currently 5.5%. That makes banking in Brazil a fiscal operation, says Mansueto Almeida, an expert on the public finances. The funding comes from the state, which borrows at a much higher rate than firms pay. The difference, a loss, is borne by taxpayers.

The alternative path for Mr Tombini to go down is to cut rates despite rising inflation—a daring move given Brazil’s history. The cause of price increases, after all, is not an overheating economy, but the real’s fall, rising taxes and the drought. The textbook response would be to “see through”—ie, ignore—this inflation.

But soft money would hurt, too. It would cause the real to fall further, and thus accelerate increases in the prices of imported goods. Foreign debts, which Brazilian firms and local governments have accumulated due to the lower interest rates on offer, would become harder to bear. Data collected by the Bank for International Settlements show dollar debts rising from $100 billion to $250 billion over the past five years. But the burden in local-currency terms has jumped much more, from around 210 billion reais to 655 billion reais (see chart 2). The state lends a hand here too, with the central bank offering swap contracts to insure firms against a falling real. The scheme cost the bank 38 billion reais in the second half of last year alone.

Faced with these poisonous options, a middle path is most likely. Interest rates will be too high for households and firms, so subsidised funding will grow. But they will be too low to protect the real, so swap costs will rise, too. Both subsidies put extra pressure on the government’s finances. By mixing monetary and fiscal policy in this way, Brazil is slowly rendering both ineffective. In an economy heading for recession, that is not a good place to be.

Schumpeter

Brazil’s business Belindia

Why the country produces fewer world-class companies than it should

BRAZILIANS make up almost 3% of the planet’s population and produce about 3% of its output. Yet of the firms in Fortune magazine’s 2014 “Global 500” ranking of the biggest companies by revenue only seven, or 1.4%, were from Brazil, down from eight in 2013. And on Forbes’s list of the 2,000 most highly valued firms worldwide just 25, or 1.3%, were Brazilian. The country’s biggest corporate “star”, Petrobras, is mired in scandals, its debt downgraded to junk status. In 1974 Edmar Bacha, an economist, described its economy as “Belindia”, a Belgium-sized island of prosperity in a sea of India-like poverty. Since then Brazil has done far better than India in alleviating poverty, but in business terms it still has a Belindia problem: a handful of world-class enterprises in a sea of poorly run ones.

Brazilian businesses face a litany of obstacles: bureaucracy, complex tax rules, shoddy infrastructure and a shortage of skilled workers—to say nothing of a stagnant economy (see article). But a big reason for Brazilian firms’ underperformance is less well rehearsed: poor management. Since 2004 John van Reenen of the London School of Economics and his colleagues have surveyed 11,300 midsized firms in 34 countries, grading them on a five-point scale based on how well they monitor their operations, set targets and reward performance. Brazilian firms’ average score, at 2.7, is similar to that of China’s and a bit above that of India’s. But Brazil ranks below Chile (2.8) and Mexico (2.9); America leads the pack with 3.3. The best Brazilian firms score as well as the best American ones, but its long tail of badly run ones is fatter.

Part of the explanation is that medium and large firms tend to be better-organised than small ones, and not only because well-run ones are likelier to grow. Brazil offers incentives aplenty to stay bitty, such as preferential tax treatment for firms with a turnover of no more than 3.6m reais ($1.3m). As they expand, many firms split rather than face increased scrutiny from the taxman. According to the World Bank, a midsized Brazilian firm spends 2,600 hours filing taxes each year. In Mexico, it is 330 hours.

Ownership patterns play a part too. Many Brazilian concerns are controlled by an individual shareholder, or one or two families. Two-thirds of those with sales of more than $1 billion a year are family-owned, notes Heinz-Peter Elstrodt of McKinsey, a consulting firm. That is less than in Mexico (96%) or South Korea (84%) but more than in America or Europe. Mr Van Reenen’s research shows that where family owners plump for outside chief executives, their firms do no worse than similarly sized ones with more diverse shareholders. But all too often they pick kin over professional managers—and performance suffers. This is particularly true in “low-trust” societies like Brazil, where bosses hire relatives instead of better-qualified strangers to avoid being robbed or sued for falling foul of overly worker-friendly labour laws.

Decades of economic turmoil—which ended when hyperinflation was vanquished in 1994—meant that companies were managed from crisis to crisis. This forced Brazilian firms to be nimble. But it also encouraged short-termism, which management consultants and academics finger as Brazilian managers’ number-one sin. Faced with a record drought in 2014, and a subsequent spike in energy prices in a hydropower-dependent country, Usiminas, a steelmaker, stopped smelting and started selling power it had bought on cheap long-term contracts. Energy sales made up most of its operating profits that year. Such short-term stunts are hardly the path to long-term greatness.

Worse, crisis management all too often consists of going cap in hand to the government. Brazilian bosses continue to waste hours in meetings with politicians that could be better spent improving their businesses. In January 2014, as vehicle sales flagged, the automotive industry’s reflex reaction was to descend on the capital, Brasília, and demand an extension of its costly tax breaks. Thanks to lifelines cast by the state, feeble firms stay afloat rather than sink and make room for more agile competitors. Shielded from competition by tariffs, subsidies and local-content rules, they have little reason to innovate. A locally invented gizmo which lets cars run on both petrol and biodiesel is nifty. But, asks Marcos Lisboa of Insper, a business school, does that really justify six decades of public support for the motor industry?

The dead hand of government

Indeed, a glance at the “Belgian” end of Brazil’s corporate landscape suggests that successful firms cluster in sectors the state has not tried desperately to help, such as retail or finance. Bradesco, a big lender, is internationally praised as a pioneer of automated banking. Each month Arezzo creates 1,000 new models of women’s shoes, and picks 170-odd to sell in its shops.

Brazil’s other world-beaters are in industries like agriculture and aerospace, which are free to compete at home and abroad, and in which the government sticks to its proper role. In 1990 farms were allowed to consolidate and to buy foreign machines, pesticides and fertiliser. Efforts by Brazil’s trade negotiators opened up export markets. JBS, a meat giant, can slaughter 100,000 head of cattle a day, selling more beef than any rival worldwide. Thanks in part to Embrapa, the national agriculture-research agency, Brazilian farms have been raising productivity by about 4% a year for two decades. Similarly, a supply of skilled engineers and know-how from the government’s Technological Institute of Aeronautics has helped turn Embraer, privatised in 1994, into one of the world’s most successful aircraft-makers.

The success of businesses such as these offers a lesson for the state. The best way to make Brazil’s underperforming firms more competitive would be to make them compete more. Coddling by the state can be more a curse than a blessing. Ronald Reagan’s dictum that the nine most terrifying words in the English language are, “I’m from the government and I’m here to help,” translates well into Flemish, Hindi and Brazilian Portuguese.

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Davos: a chance for Brazil to regain international confidence

The World Economic Forum Annual Meeting in Davos, Switzerland ended yesterday debating the world’s most pressing issues and long-term challenges, including inequality, climate change and terrorism. For Brazil, the forum was an opportunity to reverse the negative news flow: low growth, corruption and incompetence.

Joaquim Levy, Brazil’s Finance minister, reassured the government’s determination to attract the confidence of international markets and increase investments.

Source: Epoca

Brazil’s Finance Minister, Joaquim Levy reassured the government’s determination to attract the confidence of international markets and increase investments.
 In office since January 1, when Rousseff began her second term, Levy represents the orthodox approach criticized by Rousseff in October’s presidential elections.

His presence among Rousseff’s team may be the only hope that reasonable measures will be taken to lead Brazil away from economic chaos. Levy affirmed that his goal is to build confidence and to ensure that it is easy to do business in Brazil. And when he acknowledges that they “have much to do in that area”, it is music to the international audience.
Levy said earlier this year, after a period of growth based on consumption, the Brazilian government decided to change the economic approach. “We created many jobs, we had a lot of inclusion. Then the process began to slow down, there was the commodity crisis. We decided to change, “he said to G1 São Paulo.

Well, we will see if he can make the difference. In the words of former Central Bank chairman, Arminio Fraga: Levy is an island  in an ocean of mediocrity.

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