Brazil's Slow Development

Brazil’s Slow Development

Brazil, consisting of about 188 million people, has the ninth largest economy in the world at purchasing power parity as of 2006. Its GDP outweighs that of any other Latin American country. Because of their rapidly developing economy, Goldman Sachs, one of the world’s largest global investment banks, selected Brazil as one of the nations that will outshine most of the current richest countries of the world. The BRIC thesis argues that these developing countries (Brazil, Russia, India and China) will share world economic dominance by the year 2050. It is predicted that these countries combined will make up over 40% of the worlds population and hold a combined GDP (PPP) of nearly $15 trillion. The thesis forecasts that Brazil along with Russia will become the world’s largest supplier of raw materials. Brazil’s current major exports include among other things coffee, soybean, iron ore, steel, and textiles. However, in a recent study reported in The Economist, Brazil seems to be lagging behind the other three developing countries. Brazil’s GDP (PPP) per person in 1996 trailed behind Russia, India and China at 3.3% while the three developing countries as a whole have grown at an average of 7.3%.

According to The Economist Intelligence Unit, Brazil’s risk assessment in April 2007 is on average stable. A stable �sovereign risk’ (a rating of BB) means that while payment difficulties are not foreseen, there are concerns about the quality of the fiscal adjustment and about an increasing social security burden. A stable �currency risk’ (a rating of BBB) means that there is a risk of volatility in the event of global financial market turbulence. A stable �banking sector risk’ (a rating of BB) means that the steady, low-inflation GDP growth will contain non-performing loan ratios, but high spreads will increase default risk in the event of hesitant growth. However, Brazil’s economic structure risk was rated A due to the improvement to solvency indicators brought about by the GDP revisions.

Inflation last year was only 3% which is 1.5% lower than the target rate set by the central bank. Real interest rates are at their lowest level since 2001. There are many factors that contribute to this slow growth. One report in an April 2007 issue of The Economist argues that since Brazil declared its independence instead of breaking everything down and starting fresh, it has been adding layer upon layer of change. Since their independence in 1822, Britain insisted they assume the debts of the Portuguese crown. Because of this, Brazil is now an international creditor. Another reason is that Brazil, unlike the other BRICs is richer and more urbanized. In essence, the report argues that Brazil will continue to lag behind because they are stuck between progress and immobility. Brazil’s widespread problems in education, poverty, and corruption also contribute to their stagnancy.

Education in Brazil is a huge problem and has been getting worse as the years go on. Forty percent of the teachers are absent at least once a week. The lack of motivation to do well academically translates into low scores in both literacy and math. In fact the Organization of Economic Cooperation and Development (OECD) administered tests in reading and math to 40 countries including Brazil and reported that Brazil came in last in math and fourth from the bottom in reading. Brazilians who are of age to work have an average schooling of only 4.1 years. That is not to say that the country is not making an effort to improve. In the 1990s the federal government began to distribute money to states and municipalities on the basis of enrollment in primary school to encourage education among children. However much of this money is going to waste. Grade repetition is very popular in Brazil. While the number of graduates in certain schools tripled because of the monetary incentive, this only amounts for a portion of the 30% more children in the 7-14 age group that are enrolled in school. Part of the problem is the country’s lack of investment in education. Brazil spends a mere 4.3% of its GDP on public education which is far less than it should given the amount of children that make up its population. It’s an ongoing cycle where the government fails to invest in education and because of this the schooling system is deteriorating and illiteracy is increasing. And because students keep repeating grades, no one wishes to invest in quality.

Poverty is another factor that contributes to Brazil’s slow growth. According to the Getulio Vargas Foundation, a Brazilian government funded research organization and one of Brazil’s top schools, 18.57% of the country’s population are living in poverty. In slums like Bacabeira, more than half its population live below the official