A New Blue Ocean by unknow

Author:unknow
Language: eng
Format: epub
ISBN: 9789811576874
Publisher: Springer Singapore

6.2 Macroeconomic Evolution of Brazil (2002–2015)

At the beginning of the new millennium, it is plausible to observe in Brazil a new cycle of economic expansion characterized by a pattern of high and sustainable growth, different from that prevailing between 1980 and 1999, when growth was modest and unstable. These changes were the result of a number of factors, including a strong increase in exports coupled with a favorable international context, the expansion of the domestic market—a product of the Lula government’s social and income policies—and the maintenance of a stable macroeconomic framework, which had the merit of ensuring a political transition without major disruptions, preserving the expectations of the economic agents (Kupfer et al. 2009).

During the first years of the 2000s, Brazil experienced a climate of uncertainties, mainly linked to the unfavorable evolution of several economic variables and doubts regarding the country’s political course in the context of an electoral dispute. The economic problems of 2002, marked by inflationary acceleration and high levels of external debt, were intensified by the crisis of mistrust generated from the prospect of an electoral victory by the Workers’ Party. The uncertainty surrounding what would happen from 2003 with the inauguration of the new government increased investor fears and deepened the deterioration of the main economic variables. Country risk reached more than 2000 basis points in October 2002, after sitting at just over 700 points in March of that year. The exchange rate went from R$ 2.32 in March to R$ 3.05 at the end of September (see Fig. 6.6). Finally, the expectations of inflation for 2003 increased considerably from September. It was in this precarious context that Luiz Inácio Lula da Silva assumed the presidency.

Under the process of transformations in Worker’s Party thinking and political formulations, a process marked throughout the electoral campaign, the Lula government’s economic policy (2003–2010) were based on the commitment to maintain the stability achieved during the governments of Fernando Henrique Cardoso (1995–2002). In the restrictive scenario of the beginning of 2003, the first step in Lula’s economic policy was to establish a sound macroeconomic adjustment to regain control of the country’s monetary, fiscal, and exchange rate situation. In the context of monetary policy, the government revised upwards the inflation targets set by the previous government to accommodate the inflationary impact of the exchange rate depreciation that occurred in 2002. In parallel, to ensure the fall in inflation, the Central Bank increased the Selic rate to 26.5% in February 2003 (see Fig. 6.2). In the fiscal field, the government increased the primary public sector target of 3.75% of GDP to 4.25% of GDP (Barbosa and Souza 2010: 3).

Throughout 2003, the new government’s fiscal and monetary orthodoxy meant a slowdown in economic growth to 1% (see Fig. 6.1), but it collected good results in terms of fighting inflation (see Fig. 6.3). However, the exchange rate depreciation, coupled with a recovering growth of the world economy, gave a significant boost to the Brazilian export sector (see Fig. 6.5). Progressively during the first

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