OCTOBER 28, 2014 A slightly modified version of this piece was published in the Financial Times' beyondbrics blog.
FIVE STEPS TO KICKSTART BRAZIL by Samuel George and Cornelius Fleischhaker On October 26, 108 million Brazilians voted in the second and final round of the country’s presidential election. Incumbent Dilma Rousseff defeated challenger Aécio Neves by a slim but definitive margin (52 percent to 48 percent), and she will now remain in office until 2018. The results suggest that this election was not about change but the continuation of helping Brazil’s new middle class pursue upward mobility. Over the last twenty years, Brazil has taken crucial strides towards achieving its weighty, if elusive, economic potential. Finance Minister (later President) Fernando Enrique Cardoso’s Real Plan established a stable macroeconomic foundation in the 1990s, which allowed his successor, President Lula da Silva, to implement social programs that lifted upwards of 40 million people out of poverty in the 2000s. Strong growth in the naughts afforded Brasilia fiscal leeway during the global financial crisis. An aggressive stimulus package in 2009 led to claims that Brazil was the last country to enter — and first country to exit — the Great Recession. Investment poured in, and many wondered if a new day had finally dawned for the perennial “country of tomorrow”. Since 2011, however, Brazil’s burgeoning middle class has faced growing pains. For tens of millions of nouveau stable, simply participating in the country’s economy is no longer enough. They seek continued access to opportunity, and they fear a return to dire poverty. Growth, which averaged 4.5 percent annually from 2004 through 2010, has averaged 1.6 percent since, and a stagnating economy spurs disquiet. When hundreds of thousands took to the streets to protest in 2013, and when 108 million visited the voting booth yesterday, they called for improved efficiency, transparency and, above all, a return to growth. There are five ways the second Rousseff government can meet the electorate's demands: 1. Fiscal Rebalancing - Fiscal policy is at the heart of the current Brazilian malaise. Sustainability is key to an environment conducive to growth and investment, yet Brazil’s fiscal balances have eroded over several years. Rebuilding them will likely require a similar amount of time. The country’s public spending (40 percent of GDP) far exceeds that of other upper-middle income countries. This spending includes efficient social-welfare programs such as Bolsa Familia, but also plenty of pork worth cutting.