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Speech in English and in Portuguese by OECD Secretary-General Angel Gurría
Brazil has moved up the ranks of the world’s largest economies while achieving much more inclusive growth than in the past. Stable and predictable macroeconomic policies underpinned these gains. More recently, demand has been supported by macroeconomic stimulus, which has encouraged the expansion of the non-tradable sector, while manufacturing is suffering from declining competitiveness, and supply-side constraints appear to be biting. Inflation has remained high and has been allowed to drift momentarily above the tolerance band, and monetary policy credibility risked being undermined by political statements about the future trajectory of interest rates. The central bank started a tightening cycle in April of 2013. The fiscal rule has also been undermined, as the inflexible fiscal target ‑ defined in terms of a primary surplus – has required unusual but legal measures to account for cyclical weakness and meet the target, reducing clarity. Fiscal challenges in the longer term are rising as the population will start to age fast in a decade from now and pension expenditures are already rising.
The global crisis has brought shortcomings in productivity and cost competitiveness to the fore. Supply-side constraints, which are increasingly impeding growth, include pressing infrastructure bottlenecks and a high tax burden, exacerbated by an onerous and fragmented tax system. A tight labour market and continuing skill shortages have resulted in strong wage increases. Although credit is rising at a substantial pace, investment financing at longer maturities continues to be scarce. Further development of long-term credit markets is hampered by a lack of private participation, owing to a uneven playing field caused by strong financial support to the national development bank which dominates long-term lending. Brazil’s participation in international trade and its integration into global production chains is below what would be expected in an economy as large and sophisticated as Brazil’s, and domestic producers continue to be shielded from foreign competition.
Substantial progress has been made in the sustainable use of natural resources. Energy generation relies strongly on renewable sources. Ethanol is a key ingredient of this strategy, but the pricing decisions of the majority government-owned oil company have resulted in petrol prices below import costs, undermining the ethanol industry. Carbon emissions have declined and deforestation has slowed, although its current pace still implies the destruction of forests of the size of Belgium (or the Brazilian state of Alagoas) every 5‑6 years.
Successful policies to spread the benefits of economic growth more widely have substantially reduced poverty and income inequality. Wider access to education have allowed more Brazilians to move into an expanding number of better paid jobs. However, the quality of education has not kept pace with the impressive expansion of the system. There are severe shortages in physical school infrastructure. A still-large number of students drop out from secondary education, and the vocational education sector is small, although increasing. Transfer payments have also relieved poverty and enhanced incentives to invest in human capital. Social expenditures have been heavily focused on pension payments, although conditional cash transfers have proven an effective tool to address poverty and inequality. The tax system, by contrast, is characterised by a low degree of progressivity which limits its redistributive impact.
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- Inflation, inflation expectations, unit labour costs and the unemployment rate
- Primary balance and overall balance
- International reserves and external debt
- Net replacement rates of pension benefits for average earners
- Wages and productivity in the industrial sector and relative unit labour costs
- Tariff protection levels
- Brazil's energy mix
- Forest depletion has slowed
- Income inequality in international comparison
- Poverty and inequality over time
For further information please contact the Brazil Desk at the OECD Economics Department.
The Secretariat’s draft report was prepared for the Committee by Jens Arnold and João Jalles under the supervision of Pierre Beynet. Research assistance was provided by Anne Legendre and secretarial assistance by Sylvie Ricordeau.