a dramatic situation

Clara Figueiredo, the government's economic summit is taking firm steps, digital photomontage, 2020


The Brazilian economy ended 2021 stagnant and will remain so throughout 2022

At the end of 2022 we will be able to commemorate the burial of one of the worst governments in Brazilian republican history. If an autopsy is carried out on the corpse of Bolsonarism, strong evidence of an anachronistic neoliberalism will be discovered, which is no longer practiced in any important country in the world.

The Brazilian economy ended 2021 in stagnation and will continue to do so throughout 2022. According to the Focus survey by the Central Bank (03/01/22), GDP growth in 2022 should not exceed 0,36%.

With this meager growth, unemployment will remain high and should repeat, in 2020, the 12% of 2021, while inflation will be retreating from 10% in 2021, to something around 6%, at the expense of a fierce contractionary monetary policy, that will paralyze the Brazilian economy.

Hunger and poverty will continue to increase as a result of government neglect. The aid of R$ 400 in Bolsa Família will benefit only a small portion of those in need.

To aggravate this situation, there is an advance of the Covid-19 pandemic and new flu, which may reduce the growth of rich countries, directly affecting Brazilian exports. The US central bank (Fed) announced a tightening of monetary policy in 2022, with an increase in interest rates, which should cause the outflow of foreign capital from the country.

Between 2019 and 2022, the Brazilian GDP will have an average growth of 0,5% per year. A little better than the average decrease of -0,13% per year of the Temer government, between 2016 and 2018.

Instead of putting the State in the field to help the victims of the crisis and stimulate the resumption of investment, as the G20 countries did, the Bolsonaro government reduced emergency aid from 2020 to 2021, and has been reducing public investment since the beginning of the your government.

This dramatic situation, produced by the economic policy of Minister Guedes, contrasts with the performance of the social and developmental economic policy of the Lula and Dilma governments.

Between 2003 and 2014, the Brazilian GDP had an average growth of 3,5% per year, while unemployment fell to below 6% of the economically active population. At the end of 2014, Brazil was a low-indebted country, with a net public debt equal to 32,5% of GDP, while the Central Bank accumulated reserves of US$374 billion. It is no coincidence that, as of 2008, Brazil has received positive investment grade ratings from the main risk rating companies.

The Lula administrations were marked by increased investments and a responsible fiscal policy, which reconciled the increase in social funds with the largest primary surpluses in the Brazilian economy.

Poverty fell from 26,7% in 2002 to 8,4% in 2014. For the first time in 500 years, the income of the poorest grew more than that of the richest and inequality decreased in the country. This is how Brazil left the hunger map and became the sixth largest GDP (Gross Domestic Product) in the world in 2011.

But neoliberal governments reversed part of these social and economic advances. The Temer government carried out the labor reform that reduced rights and wages, and also approved the spending cap law, which produced numerous distortions in budget management. The fiscal management of the Temer and Bolsonaro governments was a disaster that, since 2016, has only accumulated primary deficits.

It is clear that there are no easy ways out to fix the dramatic situation that will be left by the Temer and Bolsonaro governments. It is a cursed inheritance that will make the GDP of 2022 go back to the values ​​of 2013.

To face this challenging situation, the democratic forces will have to draw up an economic and social development program for the reconstruction of the country. Certainly, this program should contain emergency measures to combat hunger and extreme poverty, which provide conditions for the poorest population to survive.

The government must coordinate an ambitious plan of public and private investments, in order to expand the infrastructure and increase productivity, generating many jobs. It is necessary to design a long-term investment program that sustains growth and increased productivity. It is essential to carry out a tax reform that simplifies federal, state and municipal taxes. It is also important to reduce the taxation of the poorest, increasing taxes on the income and assets of the richest 1%, in order to reverse the regressiveness of the Brazilian tax structure.

Monetary policy must keep inflation under control, without exaggerating the dose of interest, to preserve growth and, at the same time, avoid an unpayable debt service. The new government must resume industrial policies and those for technological investment, which restore the competitiveness of Brazilian industry. Of course, without forgetting climate and environmental issues.

What is at stake in the next elections is whether we will continue with the disastrous economic policy of the Bolsonaro government and other neoliberal candidates, or whether we will resume the path of social developmentalism towards the welfare state.

* Guido Mantega is professor of economics at Fundação Getúlio Vargas (FGV-SP). He was Minister of Finance in the two terms of the Lula government.

Originally published on Folha de São Paulo.

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