1

BRAZIL’S ECONOMIC TRANSFORMATION: AN OVERVIEW

Edmar BachaStern School of Business, NYU

September 28, 2012

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SUMMARY

• Inflation record, before and after 1994• GDP growth experience• Recent macroeconomic indicators• Some structural challenges

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THE TWO BRAZIL’S: INFLATION BEFORE AND AFTER THE 1994 REAL PLAN

4

MONTHLY INFLATION FROM JAN 1980 TO THE REAL PLAN (JULY 1994)

5

MONTHLY INFLATION AFTER THE REAL PLAN, 7/1994-12/2011

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ANNUAL INFLATION RATE, 1980-1993

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ANNUAL INFLATION RATE, 1995-2011

8

GDP GROWTH, 1901-2011

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%1

90

5

19

12

19

19

19

26

19

33

19

40

19

47

19

54

19

61

19

68

19

75

19

82

19

89

19

96

20

03

20

10

PIB PIB per capita(MM 5 anos, %)

9

GDP GROWTH, 1948-201119

48

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

Yearly GDP growth rates (Y') Ten-year moving average

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POST-WW-II GDP GROWTH, SELECTED PERIODS

PIB PIB per capita

1951-80 7,1% 4,3%

1981-94 1,9% -0,1%

1995-2004 2,6% 1,0%

2005-10 4,2% 3,1%

2011-12 2,3% 1,4%

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AVERAGE ANNUAL REAL GROWTH RATE OF HOUSEHOLD PER CAPITA INCOME, 1999-2009

1º 2º 3º 4º 5º 6º 7º 8º 9º 10º0

1

2

3

4

5

6

Média: 2,4

Taxa média anual de crescimento da renda real domiciliar per capita, por décimos da distribuição de renda,1999-2009 (%)

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PER CAPITA HOUSEHOLD INCOME GROWTH, 2009-2011

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UNEMPLOYMENT RATE 2002.3-2012.7

Mar

/02

Jul/0

2

No

v/02

Mar

/03

Jul/0

3

No

v/03

Mar

/04

Jul/0

4

No

v/04

Mar

/05

Jul/0

5

No

v/05

Mar

/06

Jul/0

6

No

v/06

Mar

/07

Jul/0

7

No

v/07

Mar

/08

Jul/0

8

No

v/08

Mar

/09

Jul/0

9

No

v/09

Mar

/10

Jul/1

0

No

v/10

Mar

/11

Jul/1

1

No

v/11

Mar

/12

Jul/1

2

0

2

4

6

8

10

12

14

Unemployment rate, s.a. (%)

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NET PUBLIC SECTOR DEBT, 1991.01-2012.01 (% GDP)

1991.011993.081996.031998.102001.052003.122006.072009.022011.090

10

20

30

40

50

60

70

Sem Eletrobras e Petrobras Total

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REAL OVERNIGHT INTEREST RATE, 1996.01-2012.01 (p.y.)

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GROSS AND NET EXTERNAL DEBT AS A RATIO OF G&S EXPORTS, 1970.IV-2011.III

-1,0

0,0

1,0

2,0

3,0

4,0

5,0

4°Tr

im.1

970

4°Tr

im.1

974

4°Tr

im.1

978

4°Tr

im.1

982

4°Tr

im.1

986

4°Tr

im.1

990

4°Tr

im.1

994

4°Tr

im.1

998

3°Tr

im.2

000

3°Tr

im.2

001

3°Tr

im.2

002

3°Tr

im.2

003

3°Tr

im.2

004

3°Tr

im.2

005

3°Tr

im.2

006

3°Tr

im.2

007

3°Tr

im.2

008

3°Tr

im.2

009

3°Tr

im.2

010

3°Tr

im.2

011

Dívida total líquida / exportações

Dívida externa total / exportações de bens e serviços

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BRAZIL’S GDP IN USD: RANK AND VALUE, 2000-2011

0

2

4

6

8

10

12

14

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Rank do Brasil entre maioreseconomias

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REAL EFFECTIVE EXCHANGE RATE (2005=100) (1980/12 TO 2012/5, 12 MO MA)

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BRAZIL’S INVESTMENT RATE:RECENT EVOLUTION AND COMPARISON WITH OTHER L.A. COUNTRIES

Argentina 23.6

Bolivia 15.9 Brazil 18.7 Chile 22.5 Colombia 22.7

Ecuador 25.4 Mexico 25.2 Panama 24.3 Paraguay 18.3

Peru 22.8 Uruguay 19.6 Mean 21.7

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IS THIS SUSTAINABLE?A/Y -1 = (P-1) + Z

Year Terms of Foreign Excess ofTrade Transfer SpendingEffect Effect over GDP(P - 1) Z (A/Y - 1)

2005 0,0% -3,6% -3,6%

2006 0,7% -2,9% -2,2%

2007 0,9% -1,5% -0,6%

2008 1,7% -0,2% 1,5%

2009 1,8% 0,2% 2,0%

2010 3,4% 1,1% 4,4%

2011 4,4% 0,8% 5,2%

Decomposition of External Bonanza, 2005-10(in 2005 prices)

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G&S IMPORTS OVER GDP (%): BRAZIL, OTHER L.A. COUNTRIES, BRICS (2007-11 RANGE)

Argentina 16-22Brazil 11-13Chile 32-40Colombia 17-20Mexico 29-32Peru 20-27

China 22-30India 24-30Russia 20-22South Africa 28-34

Average (except BR) 23-28

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SOURCES FOR THE SLIDES• S3: Miriam Leitão, Saga Brasileira: A Longa Luta de um Povo por sua Moeda. Record, 2011: 260-261.• S4-S7: Henrique Carvalho, “IPCA e IGP-M: Inflação Histórica no Brasil”, February 21, 2011. Avaliable

at: www.hcinvestimentos.com/2011/02/21/ipca-igpm-inflacao-historica/.• S8, S10, S14-S19: Armando Castelar, ”Desempenho Recente e Perspectivas de Crescimento da

Economia Brasileira”. Presentation to the Seminar: Whither Latin America? Rio de Janeiro: Vargas Foundation, August 9-10, 2012.

• S9: Edmar Bacha and Regis Bonelli, “Accounting for the rise and fall of Brazil’s Post-WW-II GDP growth”, July 2012. Available at: www.iepecdg.com.br.

• S11: Edmar Bacha, “Introdução”. In: E. Bacha, Belíndia 2.0: Fábulas e Ensaios sobre o País dos Contrastes. Civilização Brasileira, 2012, forthcoming.”

• S12: IPEA, Ä decada inclusiva (2001-2011): desigualdade, pobreza e politicas de renda”, Comunicados do IPEA n. 153, Sept., 25, 2012.

• S13: Thanks to Aurelio Bicalho, from Banco Itaú BBA.• S20: Edmar Bacha, “Bonança externa e desindustrialização: uma análise do período 2005-2011”. In:

E. Bacha and M. de Bolle (eds.), O Futuro da Indústria no Brasil: Desindustrialização em Debate. Civilização Brasileira, 2012, forthcoming.

• S21: Edmar Bacha, “Brazil’s Growth Potential: Some Numerical Exercises”. Presentation to the Seminar: Whiter Latin America? Rio de Janeiro: Vargas Foundation, August 9-10, 2012.