BRASILBRASIL

Las Realidades de una Las Realidades de una Nueva Etapa de Nueva Etapa de

DesarrolloDesarrollo

Prof. Aloísio Araujo

EPGE/FGV - IMPA

  GDP Growht Rates in 1930-2000

0

1

2

3

4

5

6

7

8

1931-50 1951-80 1981-93 1994-2000

Brazil Latin America World

GDP Growht Rates in 1930-2000

0

1

2

3

4

5

6

7

8

1931-50 1951-80 1981-93 1994-2000

Brazil Latin America World

Growth

Income per Capita of Korea / Income per Capita of Brazil

Growth Rate Decomposition

Mankiw, Romer & Weil’s Decomposition

Y=AKHL1--

TFP = GDPGrowth – 0,3* CapGrowth –0,5*SchoolGrowth – 0,2*LaborForceGrowth

Human Capital

Quantity of Education

Latin America and the World

Quantity of Education

Brazil is Getting Better

Quality of Education

Barros (2001): Quantity vs. Quality

Relationship between Growth Rates and Years of Schooling and Scores in International Standardized.  

Correlation between Growth Rates and International Tests Scores is much higher than between Growth Rates and Years of Schooling.      

Quality of Education: Brazil

Quality of Education: Brazil & Latin America

Mathematics Results - Third Grade

0 50 100 150 200 250 300 350 400

Cuba

Brazil

Colombia

Paraguay

Rep. Dominicana

Peru

Student’s grades from the First International Compared Study (UNESCO) Mathematics Results from Third Grade

Student’s grades from the First International Compared Study (UNESCO) Mathematics Results from Fourth Grade

Mathematics Results - Fourth Grade

0 50 100 150 200 250 300 350 400

Cuba

Brazil

Colombia

Paraguay

Rep. Dominicana

Peru

Wage Inequality: Brazil and United States

Income inequality in Brazil is mainly due to education inequality

Education Inequality is Deaceasing for Youngsters (13 years of age)

Source:A Agenda Perdida, 2002

Credit

Credit to Private setor (1998)

Investiment

Government Surplus as a Percent of GDP

Investments as a Percent of GDP

Source: Kehoe et al., 2002

Chile and Mexico are very similar

Private Credit as a Percent of GDP

Real GDP per Working-Age (15-64) person detrended by 2% per year

... However, they differ on Credit and Growth

Index of Real Wages in Manufacturing

Source: Kehoe et al., 2002

Structural Reforms Already Done

Privatization Telecommunication

Mining, Steel

Electricity (?)

Water and Sewage (?)

Fiscal Responsibility Law

Renegotiation of Municipal and State Debts

StateBanks

Income Redistributive Policies

Bolsa Escola to avoid child labor

Early Childhood Education

Adult Education

University Quota for Blacks?

Zero Hunger Program

Erradication of illiteracy

Young adult (Supletive)

Structural Reforms: To Be Implemented

Independence of Central Bank

Retirement System

Tax Law

Labor Regulation

Bankrupcy Law

Current Negotiations with State Governors

Retirement System Tax Law

• Increase the minimum age of retirement: women from 48 to 55 and men from 53 to 60

• Tax on the pension of retired workers with higher salaries

• Create conditions for development of pension funds for public employees

• Diminish the tax on labor and increase tax on consumption - descrease degree of informality in the labor market

•Diminish tax distortion

New Bankrupcy Law (Chapter 11)

• Maintain current “concordata”, a pre-package

convenient for small and medium business

• Allow for broader scope of negotiation in other cases

• Create creditor´s comittee to avoid hold-up problem

• Mitigate priority (labor and fiscal) problems

• Mitigate sucession problems

• Incentivate debt-equity swaps (?)

Final Comments

Flexible exchange rates and serious macroeconomic

policies (high interest rate and increase in primary

fiscal surplus) led to fall on “Brazil Risk” from 24 to 13

Further decline depending on new reforms which are,

however, politically difficult to implement

Once economic growth resumes, decline on Debt/GDP

ratio will allow long run sustentability of government

debt and further decline expected