Brazil: Resilience in the Face of the Global Crisis
banking system has remained solid. Profitability, solvency, and asset quality indicators have all been strong. As a whole, the ratio of capital to risk-weighted assets was 17 percent before the crisis, in August 2008, well above the minimum 11 percent required by Brazilian law and by Basel II. Recent changes in regulations fostered this increase in capital adequacy ratios. Social Protection. On the social side, higher growth—as reflected in rising labor income and employment—and the introduction of enhanced social policies helped reduce poverty and income inequality. The poverty rate fell from 33 percent in 2003 to 22 percent in 2008, paced by increases in labor income, a sharp fall in unemployment, and well-targeted conditional cash transfer programs. From 2003 to 2008, labor income increased by 20 percent in real terms, while the unemployment rate fell from 12 percent in 2003 to 8 percent in 2008. In total, more than 30 million people freed themselves from poverty between 2002 and 2008. Income inequality also fell, with the Gini index dropping from 0.58 in 2003 to 0.56 in 2008 as a result of a reduction in educational disparities, substantial increases in the national minimum wage, and the expansion of cash transfer programs. The country’s major conditional cash transfer program, Programa Bolsa Familia, contributed substantially to reducing poverty in the past decade (figure 3.9), especially extreme poverty. The incidence of extreme poverty would be an estimated 9 percent without Bolsa Familia transfers, instead of the observed 7.5 percent; this represents a reduction in extreme poverty of almost 15 percent. The Brazilian government’s establishment and expansion of a broad social protection network has further bolstered domestic demand. The incorporation of a large part of the population into the social protection network has not only expanded the domestic market, but also hedged against the effects of economic activity and employment fluctuations on income, as the cash transfers received by the beneficiaries are not sensitive to macroeconomic cycles. Challenges to Long-Term Growth. Despite these remarkable improve-
ments, the Brazilian economy before the global crisis still faced challenges in guaranteeing sustainable growth in the long run. The first of
117