Brazil Under Lula: Off the Yellow Bric Road

Topics: Brazil, Goldman Sachs, BRIC Pages: 5 (1770 words) Published: October 7, 2012
Question 1:

1. Situation Analysis
Brazil is being considered as a growing economy. In fact the country, one of the BRIC nations is seen by analyst of Goldman Sachs as one of the five nations that will be at the top of all nations with regard to a country`s GDP (The Goldman Sachs Group Inc., 2007). To understand Brazil`s current situation and how the country may be able to grow out of this position as a global player in the near future aiming a better globalization of the country by the year 2050, one has to see Brazil within a bigger frame. Within this frame, actions taken have to be integrated into the five obstacles Brazil currently faces.

1.1. The five obstacles Brazil has to overcome (Brazil Cost) There are five obstacles according to McKinsey that Brazil has to pay attention to in order to grow in the future as a global player. These obstacles are a reduction of size and importance for the informal sector, to correct deficiencies of macroeconomic nature, which are for example the high real interest rate and a high government debt-to-GDP ratio. Further does McKinsey advice the Brazilian government to reduce the excessive bureaucratic regulation and to improve the quality of its public services, which are for example the Brazilian education, justice and security. Another point on the agenda for future growth of Brazil should be the development of the country`s infrastructure. These five areas of improvement, which run under the name ‘Brazil cost’, are a good start for Brazil to consider future plans and further to consider in how actions taken so far fit to the aim of being a country of globalization. These actions taken by the Lula government will be analyzed within the context of the country`s future growth.

1.2. Actions taken by the Lula government
Being aware of the obstacles Brazil has to fight, it was the aim for the Lula government to initially reduce the poverty and inequality Brazilian citizens were facing. The outcome of a thorough action plan set up three pillars. The first was to stabilize the macro economy. Further was trade an issue for Brazil to grow and become a global player. The third pillar is dedicated solely to the issue of inequality. Regarding the macroeconomic stability, Brazil was able to increase its investment grade from B+ to BB, which made Brazil more attractive to investors. Part of it can be credited to the improved corporate governance standards for new companies listed on the Sao Paulo Stock Exchange, through which foreign investors got attracted to the Brazilian securities. In addition did the debt-to-total exports ration decrease from 3 to less than 1. The concept regarding macroeconomics was to only use the available money at hand so that stability finds itself. This concept was a new milestone to Brazil`s macroeconomic instability, the country went through to prior years. Based on an instable macro economy the aim for a growth rate of 5% arose (The Goldman Sachs Group Inc., 2007). To tackle a rate of growth at 5% or higher the Lula government was active in the “Doha Round”, which negotiated the topic of trade. Brazil was able to gain negotiation power through the creation of the G-20, which consists of 20 developing countries. This way Brazil was able to lower the tariffs and subsidies on their agricultural products that were exported. On the other side did the import tariffs on manufacturing goods decline as well. Through the excessive demand of agricultural goods from China, was the Brazilian GDP increasing to 4.9% (in 2004). However could only be a few farmers being credited for this growth, which has even spread the gap of inequality. To fight the inequality Brazil increased the national minimum wage from $80 to $160. Further did the Lula government continue with its ‘noncontributory pension program’ as well with the ‘Benefits for Continuous Service’. Expanded was the ‘School Grant’, which was renamed the ‘Family Grant’, which gave families dependent on their income...

References: Naim, M. (2009, February 16). Think Again: Globalization. Retrieved September 18, 2012, from Foreign Policy:
The Goldman Sachs Group Inc. (2007). BRICs and Beyond. New York City: Goldman Sachs Global Economics Group.
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