Economic survey of Brazil 2006

 

Contents | Executive summary | How to obtain this publication | Additional information

 

 

Published on 24 November  2006. The next Economic Survey of Brazil will be prepared in 2008.

An Economic Survey is published every 1½-2 years for each OECD country. Read more about how Surveys are prepared

The OECD assessment and recommendations on the main economic challenges faced by Brazil are available by clicking on each chapter heading below. Chapter 1 identifies the challenges for which the subsequent chapters provide in-depth analysis and policy recommendations.

Contents                                                                                                                           

Chapter 1. Fostering long-term growth: the challenges ahead
Brazil’s economic growth performance is likely to improve. Productivity has risen since macroeconomic stabilisation in the mid-1990s, underpinned by structural reforms, including trade, investment and product-market liberalisation. But macroeconomic and structural distortions remain, preventing Brazil from reaping the full benefits of stabilisation in terms of higher growth. Additional structural reform will therefore be needed to lift the economy’s growth potential over the medium- to longer-term, so as to narrow Brazil’s income gap relative to the OECD area, which has widened. Macroeconomic disarray during the 1980s and early 1990s is the main culprit for the fall in relative living standards. Three policy challenges are identified in this Survey: to consolidate macroeconomic adjustment, to boost innovation in the business sector and to improve formal labour utilisation.

Read also ECO Working Paper 534 Social security reform in Brazil: Achievements and remaining challenges

2. Consolidating macroeconomic adjustment
Brazil has made considerable progress in recent years towards consolidating macroeconomic stability, which is a key framework condition for sustained growth. Monetary policy continues to respond swiftly to changes in the inflation outlook, anchoring expectations. Fiscal policy has been guided by debt sustainability considerations, delivering primary budget surpluses that have often exceeded the end-year targets. Nevertheless, while the public debt-to-GDP has been reduced, it remains high, especially in comparison with other emerging-market economies. Brazil’s overarching macroeconomic challenge is therefore to continue to reduce the public debt overhang while improving the quality of fiscal adjustment, which has so far been underpinned by revenue hikes, rather than a retrenchment of expenditure commitments. To do so, measures will need to be taken to arrest the increase in current spending, especially on pensions, paving the way for subsequently removing distortions and reducing the tax burden over the medium to longer term, once the debt-to-GDP ratio has been reduced in a sustainable manner. The favourable domestic macroeconomic environment, with falling inflation and improving growth prospects, appears propitious for reform towards the gradual phasing out of directed credit and a reduction in compulsory reserve requirements.

Read also ECO Working Paper 531 Consolidating macroeconomic adjustement in Brazil

3. Boosting innovation performance
Brazil’s main challenge in innovation policy is to encourage the business sector to engage in productivity-enhancing innovative activities. At 1% of GDP, R&D spending (both public and private) is comparatively low by OECD standards and is carried out predominantly by the government. Most scientists work in public universities and research institutions, rather than in the business sector. Output indicators, such as the number of patents held abroad, suggest that there is much scope for improvement. Academic patenting effort is being stepped up and should be facilitated by the easing of restrictions on the transfer and sharing of proceeds of intellectual property rights between businesses and public universities and research institutions. Innovation policy is beginning to focus on the potential synergies among science and technology promotion, R&D support and trade competitiveness. To be successful in boosting business innovation, these policies will need to be complemented by measures aimed at tackling the shortage of skills in the labour force; this shortage is among the most important deterrents to innovation in Brazil, particularly against the backdrop of a widening gap in tertiary educational attainment with respect to the OECD area.

Read also ECO Working Paper 532 Boosting innovation performance in Brazil

4. Improving labour utilisation
Labour force participation is comparable to the OECD area for prime-age males. It is somewhat lower for females and is trending down for youths as a result of rising school enrolment. The labour market is placing an increasing premium on skills, making it particularly difficult for the less educated to find a job. Labour informality is pervasive and turnover high, especially for the less educated, discouraging investment in labour training and the acquisition of job-related skills, and perpetuating income disparities. The main policy challenge is to improve labour utilisation by reducing informality and fostering human capital accumulation on and off the job. A stable macroeconomy is a pre-condition for reducing unemployment, but a greater focus on activation within the current policy framework would be advisable. To close the remaining gender gap, female labour force participation in full-time jobs could be encouraged by increasing the supply of affordable child care and pre-school education. Labour turnover can be reduced by mitigating the incentives for negotiated separation, which currently arise from the design of severance insurance (FGTS) in the event of unfair dismissal. Skill marketability can be enhanced through the introduction of a national skills certification system, and labour training can become more cost-effective through increased contestability in existing programmes.

Read also ECO Working Paper 533 Improving labour utilisation in Brazil

How to obtain this publication                                                                                      

The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations but not all of the charts included on the above pages.

The complete edition of the Economic survey of Brazil  2006 is available from:

Additional information                                                                                                  

 

For further information please contact the Brazil Desk at the OECD Economics Department at eco.survey@oecd.org. The OECD Secretariat's report was prepared by Luiz De Mello and Diego Moccero under the supervision of Peter Jarrett.

 

Related Documents

 

Presentation (in Portuguese) by Luiz de Mello, Brazil/South America Desk, OECD Economics Department, at a seminar at the Getúlio Vargas Foundation, Rio de Janeiro on 24 November 2006, marking the publication of the Economic Survey of Brazil 2006

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Estimating a fiscal reaction function: the case of debt sustainability in Brazil

Challenges to Fiscal Adjustment in Latin America: The Cases of Argentina, Brazil, Chile and Mexico

Economic Survey of Brazil 2005

 

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