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World Class Brazil. Innovation and social tension in the Latin American powerhouse

Presentation of Aspenia 64
Rome, 08/04/2014, Aspenia
Press clippings
Audio-video clips

With issue 64 of the Institute’s Aspenia journal dedicated to Brazil, the panel discussion for the launch of the volume focused on examining recent developments in a country that has come through several consecutive years of internal political stability, during which the foundations were laid for its sustainable economic growth and greater international influence. It was observed, however, that Brazil has now entered a phase of relative slowdown, requiring further structural reforms to satisfy the expectations of its middle class and to realize the country’s enormous potential. In a nutshell, Brazil is likely to remain stuck in the so-called “middle-income trap”, partly for internal reasons and partly because of an altered global landscape, especially owing to the slowdown in Chinese demand for raw materials, on which Brazilian exports heavily depend.

It was suggested that the major challenge facing the country is to move beyond an internal growth model based on consumption, easy credit, and rising salaries. The driving engines of this model have slowed in pace, with a loss of industrial competitiveness and productivity (currently low compared to other emerging economies). A number of Brazil’s bottlenecks were attributed to a lack of modern infrastructure befitting the size of the country, as well as a not particularly efficient legislative and bureaucratic-administrative framework (with areas of truly endemic corruption). Household debt has also grown significantly, thus entailing latent risks for the banking system – even if so far the banks have remained well-capitalized. In addition, according to some observers, the government has committed multiple policy errors, such as in the management of inflation, and, more generally, in relying excessively on exports of raw materials.

Turning to examine the energy sector, the panelists pointed to both highlights and weak spots. Over the last decade, energy demand has doubled and the country is now one of the “greenest” in the world, thanks to a varied mix of sources (including hydroelectric, gas, solar, and wind power). Nevertheless, significant investments were deemed necessary to expand and modernize the country’s energy infrastructure in the face of rapidly growing demand. In terms of a technology-based sector as significant as the automotive industry, it was argued that the decision to focus on alternative fuels for transport has given Brazil a comparative advantage – both as a market and as a place of production.

The panelists then drew attention to a number of factors – first and foremost of a long-term nature – that they considered to be undoubted strengths of the Brazilian model, namely: a demographic structure that ensures the dynamism and sustainability of social policies, and an ability to combine high growth with the redistribution of wealth (which has seen a massive reduction in poverty and an improvement in the major quality of life indicators). As regards short- to medium-term factors, Brazil’s net creditor status (with the country holding significant foreign exchange reserves) and its continued ability to attract a strong flow of investment were also highlighted.

Already under President Lula, a decade of fast-paced economic growth had translated among other things into a proactive foreign policy and greater international clout, even in the presence of serious difficulties encountered with neighboring Argentina on one hand and the United States on the other, with the net effect of opening up new avenues for Brazil as a regional leader. It was noted that Brazilian diplomacy is underpinned by an approach of “renewal within tradition”, hinging on flexible alliances, an openness to engage in dialogue in all forums, and active participation in major international organizations (now also at the highest levels, as in the case of FAO and the WTO). Some cast Brazil as “the BRIC with a human face”, its melting-pot culture enabling it to forge beneficial relations with the poorest countries, with large emerging economies, and lastly with major world powers.

It was conceded, however, that the global context has become more complex, from the future of the “BRIC” grouping, which is increasingly clearly feeling the brunt of its diversity and tractability, right through to the uncertain future of the G20, which by its very nature cannot possess a degree of cohesion comparable to that of the G7 given that it lacks the underpinnings of a shared economic or political paradigm. Brazil also faces a specific challenge from China, with its tendency to predominate owing to its size and degree of international penetration, as well as from the “Alliance for the Pacific”, which embodies a vision of economic relations that in part differs from that favored by Brazil to date.

Against this rapidly changing backdrop, the largest Latin American country was seen as offering great opportunities for Europe and Italy. But while ties are already strong, it was stressed that relations need to be cultivated at all levels, particularly in light of certain shared interests, namely: the reduction of the bureaucratic burden on business, the liberalization of world trade, and the governance of the international currency order. In conclusion, it was submitted that this amounts to quite a packed agenda, towards the fulfillment of which both the European Union and its individual member states should invest greater energies.