Economic Growth

How Brazil can return to strong and inclusive growth

Christine Lagarde
President, European Central Bank
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Brazil

Brazil has made remarkable social gains over the past decade and a half. Millions of families have been lifted from extreme poverty, and access to education and health has improved thanks to a series of well-targeted social interventions, such as Bolsa Familia, the conditional cash transfer program. I was privileged to see some of this tangible progress during my visit to Brazil last week.

I met with Tereza Campello, Brazil’s Minister for Social Development, who explained the network of social programs in the country, and guided us on a visit to Complexo do Alemão—a neighborhood and a group of favelas in the North Zone of Rio de Janeiro. We got there after a ride on the recently built cable car, which links several neighborhoods on the hills to the North Zone. This is a great example of infrastructure that has contributed immensely to improving the economic opportunities of people, who now have a quick way to move around and connect to the larger city. The stations themselves are also focal points of the efforts aimed at improving the daily lives of the people of Rio de Janeiro, since they house important services such as the youth center, a social assistance center, a public library, a training center for micro-entrepreneurs, and even a small branch of the bank that distributes the Bolsa Familiamonthly grants.

At the Alemão station, I met several women who have become successful entrepreneurs in their own communities with the support of programs aimed at micro-entrepreneurs. Women like Regina Celia, who explained how she can now go to work thanks to the availability of day care services; Solange, who has a small cosmetics business; and Cristiane, who manages a hostel. I also saw some of their children, who were practicing capoeira, a Brazilian martial art (or a dance perhaps!) at the youth center. All their stories were uplifting and I was impressed by the efforts to empower women so that they can be successful, independent entrepreneurs in their communities.

This visit gave concrete meaning to Finance Minister Joaquim Levy’s often repeated statement that a main goal of strengthening Brazil’s public finances is to make sure that the suite of social programs can be sustained over time. Encouragingly, the Brazilian government is pursuing such a strategy:

  • To stabilize gross public debt, the government announced a primary surplus target of 1.2 percent of GDP in 2015 and at least 2 percent of GDP in 2016 and 2017, which, along with the end of policy lending to banks, should put public debt on a declining path.
  • A key element in the policy strategy is to reduce or eliminate inefficient, untargeted, and costly subsidies—and here the government has adjusted key administered prices, notably those of electricity and fuels.
  • At the same time, the central bank is aiming to bring inflation down to the 4.5 percent target and to help prevent second round effects from the increases in administered prices and the depreciation of the real.

While economic policies may affect demand in the short term, they will benefit all the Brazilian people in the longer run. Indeed, at the Central Bank’s Inflation Targeting Seminar, I noted that as these measures take hold, the favorable effects on credibility and confidence should enable a return to positive growth in 2016.

To support this, the government is also taking important supply-side measures such as the infrastructure concession program. The IMF’s recent report on the Brazilian economy discusses other reforms geared at improving competitiveness and increasing the economy’s productive potential—some of which the government is now considering.

Given the continued slowdown in global demand, there is no question that Brazil—like other countries in Latin America—is facing a more difficult external environment. The economic policies now being undertaken are putting the country back on the right track—the big challenge now is implementation. The IMF supports Brazil’s efforts to strengthen its fiscal and monetary policies while maintaining its successful social policies.

These were some of the issues that I discussed in my meetings with President Dilma Rousseff, Ministers Levy and Nelson Barbosa, and Governor Alexandre Tombini. We agreed that with perseverance and the right policy choices, a brighter outlook for Brazil is within reach.

This article is published in collaboration with IMF Direct. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Christine Lagarde is the Managing Director of the IMF, Washington DC.

Image: Rio de Janeiro’s famous “Christ the Redeemer” statue is reflected on the glass facade of a building. REUTERS/Ricardo Moraes.

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