Sun, Dec 23, 2012 - Page 9 News List

Feel-good Brazil facing problems

Millions of people emerged from poverty in the past decade, but inequality, slow growth and poor investment threaten those gains

By Jonathan Watts  /  The Guardian, RIO DE JANEIRO, Brazil

Illustration: June Hsu

Marilucia Marques could be a poster child for the new Latin American middle class. Black, poor and raised by a single mother in a Rio favela, the young Brazilian lifted herself out of the slum thanks to hard study and a rare opportunity for higher education. She is now a teacher, earning six times more than her mother — who worked as a maid all her life — and is the first member of her family to be able to afford foreign travel, as well as concerts, theater and the cinema.

From a global perspective, she is exactly what the world economy is looking for: A driver of growth, an example of millennium development goal success and an indication that Latin America may be shedding a reputation for social inequality and financial instability.

In one sense, her path out of poverty is emblematic. Marques is one of more than 300 million people in emerging economies who have moved out of destitution as the global balance of power and income has shifted since the turn of the millennium. However, moves like hers are coming at very different speeds in different countries.

Among the sharpest contrast is that between the first and last of the so-called BRICs — Brazil and China — which have been hit in varying degrees by the global economic downturn and responded in very disparate ways.

This year Brazil’s GDP growth will barely creep above 1 percent — better than Britain and many countries in Europe, but a far cry from the heady 7.5 percent expansion it racked up in 2010 and well below the 3.1 percent average expected this year in Latin America.

China too has decelerated to the lowest pace in three years. Its most recent growth rate of 7.4 percent is well down on the double-digit average of the past three decades, but still sizzlingly fast compared with most nations.

Yet public contentment and perceptions of living standards appear not to have followed the same path.

According to happiness indexes and gauges of consumer sentiment, Brazil has maintained a strong feel-good factor, while many in China feel worse off.

Inequality is part of the reason. The nominally capitalist and communist nations are moving in opposite directions from those that might be expected from their ideological labels.

China’s wealth gap has widened more than any other Asian economy, according to the IMF. By contrast, in Brazil the Gini coefficient — the main measure of inequality — has gone down significantly in the past 10 years and is now at a record low; unemployment is at its mildest in a decade and minimum incomes have been steadily on the rise.

Unlike in the past, this has not been achieved at the expense of fiscal prudence. Interest rates are near record lows, inflation is stable, foreign reserves high and government debt is at a relatively benign level.

However, economic growth is now also overly reliant on consumer credit, which has increased the spending power of the population but increased household debt. According to the IMF, 23 percent of Brazil’s household income now goes on servicing debt — a higher rate than anywhere in the Americas. Economists are warning that Brazil needs to shift from consumption-driven growth to investment.

Although the overall level of credit in Brazil is relatively low at roughly half of the country’s GDP, the trend has been sharply upwards, having doubled in the past seven years.

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