Brazil breaks out

Brazil breaks out

Jeffrey D. Sachs
Professor of Economics
Columbia University
Project Syndicate

The biggest hidden story in international development these
days may be Brazil's economic takeoff. Two years ago, Brazil's
economy was left for dead, and the election of Worker Party
candidate Luiz Inacio "Lula" da Silva as President was widely
expected to trigger financial collapse.

Instead, Lula has governed with remarkable prudence, and
Brazil is poised for rapid growth. But something more fundamental
is at play: Brazil may finally be overcoming some of the deepest
obstacles to its economic development, obstacles that held the
country back for decades. If so, it could mark not only Brazil's
economic ascendancy but also the recovery of other parts of South
America.

In January 2002, American right-wingers were terrified of a
leftist revolution in Brazil. Foreign investors were panicking
over the prospect that Brazil would fail to roll over its foreign
debts.

The IMF, for a change, did a good job, providing interim
financing and throwing its political backing behind Lula after
the elections. In turn, Lula adopted orthodox macroeconomic
policies and moved to get the budget deficit under control,
breaking the panic. Market projections for Brazil's growth are
around 4 percent for 2004.

But something deeper is at play than the usual waves of
euphoria and panic in international financial markets. Much of
the credit for Brazil's turnaround belongs not to Lula but to his
predecessor, Fernando Henrique Cardoso (FHC), who was Brazil's
President from 1992 to 2000.

I credit FHC, as he is widely known, with making four key
contributions.

o First, under his leadership, Brazil firmly embraced human
rights, not only in the sense of democratic elections, but in
terms of economic justice for African-Brazilians and indigenous
Brazilians, people who had long been discriminated against. Like
most of Latin America, Brazil was born in the crucible of
conquest and slavery.

Even during the 20th century, neither the indigenous
populations nor the African-Brazilian slave descendants had much
chance in the economic and social order. That is changing fast.
Public education is becoming universally available, including for
groups that faced harsh discrimination in the past. Remarkably,
indigenous groups also won a hard-fought struggle for land rights
in their traditional Amazon homelands.

o Second, Brazil is finally embracing the global knowledge
economy. For most of the 20th century, Brazilian elites thought
that they could get by on natural resources - cattle ranches,
coffee plantations, fruit juices, and soybean farms. Now they
know that universal secondary education and extensive university-
level training is also needed. Under FHC's reforms, enrolment
rates in secondary education soared, from 15 percent in 1990 to
71 percent in 2000. Equally important, Brazilian universities are
seeing an increase in quality and attendance as well.

Most of Latin America, including Brazil, ignored public
investments in R&D for decades, while East Asian countries
invested heavily. FHC appointed a series of outstanding Ministers
of Science and Technology, and the government finally began
spending more on research and development. Brazil is becoming
known not only for orange juice, but for aircraft exports like
the Embraer jets that now compete with American and European
producers for the regional commuter market.

o Third, Brazil is coming out of its economic shell, competing
in world markets rather than protecting national markets. For
decades, due to rampant protectionism, the ratio of Brazil's
exports to GNP was one of the lowest in the world. That is
finally changing. The export/GNP ratio has risen from 8 percent
in 1990 to 13 percent in 2001, a sign that Brazil is beginning to
seek out world markets. Lula is traveling widely to promote
Brazilian exports, another sure sign that Brazil's political
economic orientation has become far more international.

o Fourth, Brazil is focusing on the health and productivity of
its people. Under FHC, Brazil pioneered an effective response to
the AIDS epidemic by guaranteeing access to antiretroviral
medicines and to widespread counseling and viral testing. The
hero of this effort, Dr. Paulo Teixera, is now at the World
Health Organization helping to lead the global effort against
AIDS.

Brazil has also dramatically improved child health, with
mortality rates of young children falling sharply, from 60 per
thousand in 1990 to 36 per thousand in 2001. Brazil's total
fertility rate (average number of births per woman) has come down
sharply as well, from 2.7 in 1990 to 2.2 in 2001.

With more children surviving to adulthood, poor families are
choosing to have fewer children, and to invest more in their
health and education. Population growth pressures are falling,
providing a powerful long-term boost to Brazil's economic
development.

Brazil's economic turnaround may have powerfully positive
effects on its neighbors, especially the struggling countries of
the Andean region. This is the most likely scenario, but it is
too early to declare victory.

Brazil still faces huge challenges. Lula will have to build on
the work of FHC. Macroeconomic stability must be consolidated,
with budget deficits brought decisively under control. The
political consensus in favor of universal education, outward-
oriented trade, health for all, and a science-and-technology
oriented economy must be strengthened.

Brazil must also pay more attention to environmental
management, especially in the fragile yet critical Amazon region,
if it wants long-term, sustainable economic development.

For Brazil to play a bigger role as regional economic leader,
greater cooperation with its neighbors in suitable infrastructure
projects and expanded markets will be needed. Great challenges,
indeed, but Brazil seems to be in the mood to meet them.