Brazil is set to grow at a disappointing 1.5% in 2012 after doing much of what it can to manage the global economic downturn. President Dilma Roussef has governed Brazil since the country’s roaring comeback in 2010 from the 2008/2009 recession. She has instituted a number of counter-cyclical measures, expanded social safety net programs, and defended the national currency-the real- as well as the industrial sector to maximize national growth during the worldwide economic contraction. In the most decided fashion, President Dilma has leaned into demand side public policies while also defending the nation against the currency devaluations of China and the United States as well as the trade imbalance such “currency wars” can create. Despite all these efforts, Brazil is now feeling the pinch, and will increasingly suffer the punch, of the global economic downturn unless North America and the European Union find a way to get back to expansionary policies that foment demand, investment and job creation.
During recent weeks it appears that President Dilma and her impatient government are increasingly willing to raise their voices to make their case about the need for a global and concerted push for just such expansionary policies. Leading off at the opening of the United Nations General Assembly in September, President Dilma spoke to the point,
“The grave economic crisis that began in 2008 has taken on new and worrisome contours. The choice of orthodox fiscal policies has been worsening the recession in the developed economies, with repercussions for the emerging countries.”
She argued,
“There will be no effective response to the economic crisis without strengthened coordination efforts between United Nations members and multilateral bodies such as the G20 [Group of 20], the IMF [International Monetary Fund] and the World Bank.”
Adding,
“This coordination must attempt to reconfigure the relationship between fiscal and monetary policy, in order to prevent the deepening of the recession, control the currency war and once again stimulate global demand.”
Evidently the Financial Times understands President Dilma’s challenges from a much different perspective. On October 2, 2012 the FT published an interview with the Brazilian executive and concluded that,
“Yet after almost a decade of largely favourable global conditions, the economy has suddenly slowed to a crawl. If the country is to cement its new-found prosperity and remain one of the engines of global growth alongside Russia, India and China, the other Bric nations, Ms Rousseff must find a new development model. In a world afflicted by economic crisis, the question is whether she can push through the changes needed to kick-start a second decade of growth. This includes tackling the thorny issues of Brazil’s lack of competitiveness and high labour costs.”
Apparently the Financial Times prefers to neglect that Brazil’s recent economic expansion took place under these very same conditions (constant complaints about Brazil’s lack of “competitiveness” and high labor costs or the so called “Brazil cost”), and indeed Brazilian wage earners’ gains under the Lula and Dilma governments have played a role in stimulating investment to meet rising consumer demand without significant inflation. Moreover, competitiveness is relative to global market conditions; and today the global downturn and currency devaluations across the developed world and China have done more to render Brazilian exports “expensive” than any other domestic factor. The Financial Times’ narrow focus on the “homemade” challenges to Brazilian development and growth is unfortunate and ignores President Dilma’s growing concern over the evident global limits to Brazilian ambitions at this juncture. In this sense, the FT misses a splendid opportunity to question the Brazilian president about just how she envisions central banks, the G-20, and the international financial institutions (IFIs) working together to launch an expansion of the global economy.
Dow Jones does not make this same mistake, rather it reports on a renewed Brazilian effort, in part a product of President Dilma’s speech and advocacy, to focus global discussions on economic recovery. Dow Jones reports from a source in the Brazilian government that the major debate at the upcoming IMF and World Bank group meetings in Tokyo this month will center on the global economy and resolving the European debt crisis. Brazil will likely advocate that debt restructuring be accompanied by fiscal adjustment policies that grow the economy rather than undermine recovery. The Dow Jones source in Brazil argues that the Brazilian formula should be considered for Europe with governments,
“taking actions to promote declining debt-to-gross-domestic-product ratios while still allowing the economy to grow with the help of fiscal stimulus.”
Also, Brazil and others may address the U.S. fiscal and monetary policies to point out the devastating global consequences of allowing the U.S. federal government to fall off the “fiscal cliff” with the automatic implementation of deep spending cuts.
These standard Brazilian positions, reasserted by President Dilma in recent weeks and likely to be at the forefront of talks in Tokyo, have been around for quite some time. During the past two years President Dilma has been reluctant to forcefully advocate them at the center-stage in global affairs, deferring to her able foreign ministry. Yet, times do change even though the global economy seems stuck in the mud from the 2008 Wall Street meltdown. Today, President Dilma seems ready for prime time global leadership now that Brazil’s own development seems mired down in the global economic muck.