The news site Valor Economico published today a long text signed by former Brazilian President Lula, with a somewhat distorted view of the Brazilian economy, worthy of someone who had just consumed Prozac – or wanted to sell a big fish while eyeing the next Presidential elections.
Perhaps Lula’s country is not the same as mine. His country has blue skies above our heads. Mine is more like a Damocles sword pointed in our direction. In his article, Lula seems to be looking at our recent past to show his accomplishments, ignoring the other actual factors that explain the boom phase of the past – something already far from our current reality. He says:
“Over the last 11 years, Brazil has given a large economic and social leap. GDP in dollars grew 4.4 times and surpassed $2.2 trillion. Foreign trade rose to $480 billion annually from $108 billion in the period. The country has become one of the top five foreign-direct investment destinations. Today we are large producers of cars, farm machinery, pulp, aluminum, aircraft; world leaders in meat, soybean, coffee, sugar, orange and ethanol.”
All this is history, and it was due much more to the exponential Chinese growth and the ultra cheap monetary policy of developing nations than any merit of his own (PT) government. Agribusiness, for instance, the main growth locomotive, experienced a large expansion despite the PT government, not because of it. But Lula insists in his false claims :
“We lowered inflation to 5.9% from 12.5% in 2002, and continue working to bring it closer to the center of the target range. Inflation has been controlled under established margins for ten years, amid an environment of economic, consumption and employment growth. We lowered the net public debt by almost half; to 33.8% of GDP from 60.4%. Payroll, interest on debt and social-security costs fell as a share of GDP.”
Inflation was actually defeated by the Plano Real (“Real Plan”), which his PT party was actually (and voted) against. The PT government actually allowed the resurgence of high inflation rate at a time when several emerging countries defeated the dragon. Our inflation rate, aided by his price freezing policies have stayed for a while at about 6 % per year, well above the 4.5% target, which is already high by international standards.
The economy, however, has virtually stopped growing, and the actual gross debt (without BNDES’ financial engineering), has increased as well. But the propaganda needs to continue:
“We placed our poorest at the center of economic policy, creating market dynamism and lowering inequality. We created 21 million jobs; 36 million people rose from extreme poverty and 42 million have reached middle-class status.”
Who creates jobs is the private sector, not the government. Jobs were created by the global economic environment, and are in danger today because of this clumsy government. There was no productivity gain in our economy, which makes wage increases pretty much unsustainable. What Lula calls middle class includes slum dwellers who earn two monthly minimum wages. But Lula questions:
“How many countries have managed that, in so little time, with full democracy and stable institutions?”
In relative terms, several! Just look at the Pacific Alliance formed by Mexico, Colombia, Peru and Chile. These countries are experiencing higher growth rates with much lower inflation and more stable democratic institutions. Not to mention the Asian countries …
Lula, however, prefer to take every criticism as a result of jealousy or threatened interests. Even the IMF would be part of this conspiracy against “our incredible success under the PT party”:
‘The novelty is that Brazil is no longer a vulnerable country and has become a global competitor. And that bothers; it rubs interests. There can be no other reason why the country’s accounts and its government actions have been subjected to increasingly rigorous scrutiny and, in certain cases, clearly speculative evaluations. But a strong country is not intimidated by criticism; it learns from it.”
Learn my ass! The PT party insists on accounting maneuvers that can no longer deceive anyone. Actually, his article is showing evidence that his PT party did not learn anything as he believes it is possible to keep masking the reality , ignoring the changes necessary to lead the country in the right direction. Lula says:
“Public gross debt, for instance, has stood out in those analyzes. But how many countries have kept gross debt as share of GDP stable, with adequate terms, as in Brazil? The country has achieved an annual average primary surplus of 2.58% since 2008, the best performance among large economies. And the administration of President Dilma Rousseff has just announced the needed fiscal reinforcement to maintain its debt reduction strategy in 2014.”
Net gross debt (if the accounting maneuvers are left out) has actually increased at a time of unparalleled economic bonanza, which is really worrysome. The fiscal surplus, which the PT always fought for, was practically trashed by his ally President Dilma, which promised a goal of 1.9 % for this year, though investors did not believe her (even though this is the lowest target since the PT party took over government in 2003). And speaking of debt :
“Brazil has a solid financial system and expanded credit availability with safeguard measures to increase loan security and the base of borrowers. Credit rose to R$2.7 trillion from R$380 billion in 11 years, or to 56.5% of GDP from 24%. How many countries have been able to produce such an expansion while lowering default rates?”
Answer: All those who created credit bubbles before they burst! The credit has greatly increased, like the former President said, without the tiniest increase in domestic savings, which means it’s obviously not sustainable. Public banks were responsible for this increase, with decisions based on political and electoral rather than economic factors. Defaults have only not risen because the employment levels are safe for now. But what happens when that starts changing?
The fallacies continue. Even Brazil’s education system was praised by Lula, as if large positive changes had occurred in this key sector. And his vainglorious and partisan tone comes in full force in his article’s conclusion:
“I have recently met global investors at the Americas Council, in New York, to show how Brazil is preparing to leap even higher in the global economy’s new stage. I returned convinced they have an objective vision of the country and our potential, different from pessimistic views. The Brazilian people are building a new era – an era of opportunities. Whoever continues believing and investing in Brazil will gain even more and growth with our country.”
Not trying to be pessimist, much less partisan, it is only realism and national interest. Lula is convinced by the enthusiasm of foreign investors in our economic framework. The facts actually say something quite different. The stock market is in free fall, with the Bovespa index now below 47,000 points. The IPO market has dried up. The ratings agencies are putting Brazil in check. Investors are uncomfortable with the excessive government intervention in the economy and the cheap tricks to make up the public accounts.
Former President Lula, speaking on behalf of his PT party and President Dilma’s government – because everyone knows about his heavy hands in the government – again demonstrates that partisan interests are placed above national interests. What Brazil needs more than ever is a statesman with the courage to put his finger in the wounds and recognize the shortcomings of the economic model of recent years.
His article shows more of the same. As many investors fear, all this side show indicates that the PT is ready to ” double down” in their failing models instead of changing their populist and interventionist approach.
Therfore, Brazil will likely remain a country of few opportunities.