Guest column: Brazil: Success where it counts

Guest Column by Deborah Wetzel

With the recent FIFA World Cup in Brazil and the upcoming 2016 Summer Olympics in Rio de Janeiro, Brazil has been the focus of much media attention. Usually, the stories have focused on high crime rates in Brazil’s biggest cities, the economic slowdown and the massive protests that occurred in June 2013. With all of these recent events, it’s easy to overlook Brazil’s significant accomplishments over the past decade. Despite the global economic crisis, Brazil has managed to maintain economic stability and has made dramatic progress in reducing poverty and inequality. Brazil has also made enormous gains in reducing deforestation and in reaching its goals on environmental sustainability.

So, while Brazil may not have grown at the same high rates as other emerging economies such as China, Brazil has succeeded in ways that really count — in creating a stable economy, in lifting people out of poverty, and in managing the toll that growth and development takes on the environment.

After tumultuous decades of debt default and hyper-inflation in the 1980s and 1990s, not to mention a shift from a military to a democratic regime in 1985, Brazil over the last decade has successfully stabilized its economy. This is important because economic stability makes life easier for all citizens, but especially for the poor. During its worst periods, inflation was over 82 percent per month. Price adjustments in shops would take place two times a day. And as soon as individuals were paid their salaries, they would immediately go out and spend every centavo, because half the value of their money would be erased over the course of a day.

In such an environment, there is no functioning except in the short-term. No planning for the future, no focus on investment. A focus on the short-term and on consumption was required just to survive.

Under President Fernando Henrique Cardoso and the Real Plan in 1994 — 20 years ago this month — the government managed finally to tame inflation and to anchor Brazil’s economy. This stabilization relied on a policy tripod of contained fiscal deficits, inflation within a target band of 4.5 percent to 6.5 percent per year, and a flexible exchange rate that could adjust to global market conditions. The government also cleaned up the financial sector with higher capital requirements and a new regulatory framework. Successive governments under Lula and Dilma have by and large sustained these policies.

So when the global financial crisis of 2008 hit, Brazil was prepared. Yes, the economy slowed significantly in 2009, and like many governments, Brazil took measures to stimulate its economy.

However, fiscal deficits have remained within reason, inflation did not skyrocket, volatility in the exchange rate was effectively managed and the financial sector remained strong and well capitalized. Unlike previous decades, where international crises threw Brazil into economic chaos, this time Brazil weathered the crisis well and in fact was a source of global stability and growth.

A second and hugely important accomplishment has been Brazil’s success in reducing poverty and inequality. Brazil has long been one of the world’s most unequal countries and has struggled to deal with extensive poverty, especially in the Northeast. The Lula administration made social inclusion and poverty reduction the hallmark of his government. The Dilma administration has continued and built on these efforts.

Between 2003 and 2012, some 10 million people were lifted out of extreme poverty (living on less than $R70 per month, or about U.S. $1.25 per day) and, over the same period, some 25 million people were lifted out of poverty altogether (living on about $R140 per month, or just over U.S. $4 per day). To give a sense of the magnitude of this accomplishment, 25 million is about the size of the population of Ghana. Equally important, Brazil has made inroads into its entrenched inequality. The Gini coefficient — a common measure of income inequality with 0 indicating perfect equality and 1 total inequality — dropped significantly from 0.59 in 2002 to 0.53 in 2012. This is a monumental shift in an index that usually moves in increments of .005.

While many countries have grown over the past decade, Brazil is one of only a few countries that have managed to reduce income inequality and is the only large emerging country to have done so.

How did Brazil manage this? Through two principal mechanisms. The first was a focus on increasing the incomes of the poorer classes in society. With unemployment at about 5 percent, Brazil has a tight labor market and increases in minimum wages and in salaries for workers have led to increases in incomes. Between 2001 and 2011, total per capita income for labor of the lowest 10 percent of society grew 4 percent per year, while the growth rate for the top 10 percent was about 2 percent per year. These increases in labor income account for about 60 percent in the drop in poverty rates.

Another factor, which accounts for about 40 percent of the reduction in poverty, was the implementation of an innovative program called Bolsa Família (Family Savings). The program is based on a powerfully simple concept: trusting poor families with small cash transfers in return for keeping their children in school and attending preventive health care visits. Bolsa Família has helped to reduce current poverty, and has helped families invest in their children, thus breaking the cycle poverty that passes from generation to generation. Bolsa Família has been one of the factors in helping to reduce extreme poverty in Brazil by more than half — from 9 to 3.6 percent of the population.

As one of the world’s best targeted social programs, it now reaches 14 million households, about 50 million people or around one-fourth of the population, and is widely seen as a reference point for social policy around the world. Success has sparked adaptations in other countries around the world, such as Indonesia, South Africa, Turkey and Morocco.

A third area in which Brazil has made remarkable progress is in meeting its ambitious goals for biodiversity conservation and climate protection. The coverage of protected areas in Brazil has increased from 8 percent (681,266 square kilometers) of the national territory in 2006 to 17 percent (1,527,213 square kilometers) in 2012.

In the last decade, deforestation in the Amazon has dropped significantly. On average, 24,940 square kilometers were deforested per year in 2002 to 2004, which has fallen to an average of 4,571 square kilometers in 2011 to 2012 — that’s a reduction in deforestation equivalent to the land area of Massachusetts on an annual basis. These measures are consistent with Brazil’s 2009 policy for climate change, which established a voluntary national greenhouse gas (GHG) reduction target of between 36 and 39 percent of projected emissions by 2020.

In the context of this commitment, the objective is to reduce deforestation rates by 80 percent in the Amazon and by 40 percent in the Cerrado (a biome of the central savannah of Brazil) until 2020. To date, Brazil is on track to meet these targets.

Like most countries, Brazil faces many challenges in adapting to a changing world economy. Growth in Brazil has recently slowed and there is still a need to improve the delivery of services and to improve logistics and infrastructure. While Brazil may not receive the same attention as others in terms of its rates of growth, it has made real inroads to the things that matter most: keeping its economy on an even keel, lifting people out of poverty, and ensuring that economic growth does not eclipse environmental sustainability and that the country serves as good steward of its incredible natural resources.

Deborah Wetzel, a U.S. national with more than 25 years of experience in development work around the world, is the World Bank Director for Brazil.