Brazil: The march of transition from the brink of bankruptcy to the largest economies

Brazil: The march of transition from the brink of bankruptcy to the largest economies

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Dina Helmy *
“What is important in economic progress is not progress only at the level of GDP, but more importantly, achievement in social policy or social justice.” Starting from this principle, former Brazilian President Lila Da Silva began his march towards the economic and social advancement of Brazil. He turned it from a country on the brink of bankruptcy to the world’s seventh-largest economy.
Although accused of corruption over the past years, he is still the best president of the Brazilian people, who gave him the title of champion of the poor. He is still the world’s most popular president on the face of the earth as former President Barack Obama called him. How he gained this popularity, and how he made Brazil a leading model of development, this is what we take a quick look at.
History of economic suffering
For decades, Brazil has suffered from political, economic and social deterioration. Since 1930, it has suffered from the woes of military rule, where civil wars have spread, and repression, imprisonment and detention have intensified. Its economy has experienced major crises that have affected social life, thus unemployment and poverty have increased, and the social gap between its citizens has increased and the middle class has almost disappeared.
When military rule ended in 1985, the military withdrew from political life and the authority shifted to civilian governments, these governments began numerous attempts at economic and social reform. The most prominent of these attempts was the work of former President Cardoso (1995-2002). The “Real” plan was devised, followed by the capitalist style, where the policies of economic openness, privatization and liberalization were adopted, and all the directives of the IMF and the World Bank were followed. This has already led to progress in macro-economic indicators, but this has not been real progress that can be translated into reality. These policies led to catastrophic consequences. Local producers suffered heavy losses. Unemployment and poverty rates were high, and inflation rate in 1994 was 3000%.
In 1999, the economy collapsed and the currency lost 40 percent of its value. Cardoso had to get an IMF loan of about $ 43 billion to save what could be saved from the economy. That led to a rise in foreign debt from $ 150 to $ 250 billion.
This has resulted in a lack of confidence in the Brazilian economy from international donors, led by the IMF, which in 2002 rejected the latest attempts of “Cardoso” to obtain a new loan. The IMF responded that it was ready to lend Brazil a new loan of $ 30 billion, but after the presidential election and to know the new president’s direction. Thus, Cardoso’s reformist attempts failed with more burdens and increased debt, leaving the government and his successor with major economic problems that cast a shadow of bankruptcy over the country despite his solid attempts to resolve it.

Lila Da Silva and the reform plan
By the end of 2002, the candidate of the left and the president of the labor union, Lila Da Silva, won the presidential elections to become the head of a country suffering from inflation, its economy lacks international confidence and high rates of poverty and social inequality. Despite the concern among investors and capitalists that the new president adopted economic leftist policies in line with his leftist tendencies defending the rights of workers and the poor, he was able to put an end to this concern by adopting a new approach that balanced the interests of entrepreneurs and the demands of the poor .This approach followed left-wing policies to address poverty, social justice, and liberalism to protect capitalists’ investments. These policies were embodied in a plan called the Real Plan.
The plan was aimed at liberalizing trade and privatizing public projects. It included policies to control inflation, attract foreign capital, and counteract the budget deficit by:
(1) Encouraging microenterprises initially: by changing lending policies and lowering the interest rate from 13.25% to 8.75%, which facilitates lending to small investors, assists in the implementation of these projects and provides employment opportunities, which contributed to addressing the problem of poverty, and the income of half of the country’s population was increased by the rate of 68%.
(2) Expansion of simple and technical industries: through interest in simple industries based on raw materials such as metallurgy, food industries, and technical industries such as automotive and aircraft industries.
Embraer company, the third largest commercial aircraft manufacturer after Airbus and Boeing, is the most prominent example of these industries. The company’s aircraft account for about 37% of the regional airline fleet in the United States.
(3) Interest in the tourism sector: it has invented a special kind of tourism known as the tourism festivals, and succeeded in receiving 5 million tourists annually.
(4) Implementation of the austerity program set by the IMF: which contributed to solving the crisis of distrust in the economy, as the program led to reduce the budget deficit and converted to a surplus of 4% of GDP in 2008, and move from a negative growth rate in the national product to a regular rate of about 7.5% in 2010.
it also contributed to the rise in credit rating and Brazil also received some $ 200 billion in direct investment from 2004 to 2011. After the IMF refused to lend it in late 2002, it became indebted to it for $ 14 billion in just 8 years of implementation of Lula’s economic plan.
What about the social aspect?
Despite the success of these liberal policies in dealing with economic conditions, Lila da Silva stressed that achievement is not complete without achieving social justice. Hence, the left part of his reform plan began, which is based primarily on confronting poverty by providing social benefits and raising income levels through a number of policies,
(1) Minimum wage policy: The minimum wage was linked to the rate of inflation and adjusted periodically to suit the change in this rate, which preserved the real value of wages and contributed to improving the standard of living of a wide range of workers in the private and government sectors.
(2) Social Security Policy: applied to private and government workers, and succeeded in covering 90% of the population over 65 years in 2009.
(3) Social benefits (Bolsa Familia): It is a social welfare program of the government of Brazil , it provides financial aid to poor Brazilian families, and if they have children , families must ensure that the children attend school and are vaccinated , it also works to give free education to children who can not afford to go to school . The government’s most important poverty alleviation program was the provision of cash support to families with incomes below $ 28 a month for the purpose of raising their standard of living and improving their families. The family receives support at an average of $ 87 per month, equivalent to 40% of the country’s minimum wage, on strict terms including the commitment to send their children to education.
This program contributed to Brazil’s first exit from the global hunger map, according to the FAO, with an estimated 11 million households, equivalent to about 33% of the Brazilian population.

Previous policies have generally helped to reduce the poverty rate from 44.7% in 2002 to 29.7% in 2009, but it has not completely eliminated it, but it has moved millions of households from poverty to the middle class. Perhaps this is one of the most important advantages that characterized the experience of Brazil from many other countries that implemented the plans and programs of the IMF without taking into account the social aspect and without providing real and effective programs that protect citizens and reduce the effects of the program and its repercussions on living conditions, which eventually lead to erosion of the middle class which Play an important role in achieving stability in society. This has not stopped at this point, as this has narrowed the gap between the classes of society. The World Bank has made it clear that the income of the poorest 10% of the population was increased by 9% per year, while the wealthiest classes increased by 2-4% per year. The average per capita income was $ 15,000.
As such, Brazil has provided a model for a country that has been able to advance its economy and achieve social justice without appropriating the rights and interests of the rich or turning to the poor and their demands. The existence of social welfare programs and the government’s decision to raise the minimum wage and make it flexible , changing by changing the rate of inflation within the improvement of the conditions of the poor and not only economic growth in the interest of the rich, as happened in most countries of the world.

Rawabet Center for Research and Strategic Studies