Brazil is Belindia – Belgium + India

Andres Velasco reflects on the recent Brazil elections. I mean how quickly things turn around. Just three years back, people were praising the outgoing President Lula who had left a strong economy. And now we are discussing how Brazil will fight its recession.

Anyways, Prof. Velasco points to this interesting story. Brazil was named as Belindia by one of its econs 40 years ago:

Forty years ago, the Brazilian economist Edmar Bacha named his country Belindia: a combination of prosperous and modern Belgium and poor and backward India. In last Sunday’s presidential election, according to many observers, the Indian part of Brazil voted for the incumbent, President Dilma Rousseff, and the Belgian part voted for the social democrat Aécio Neves. India is larger, so Rousseff won.

This is fast becoming the standard account of Brazil’s election, the most acrimonious and hotly contested in recent memory. And it is easy to see why. In Brazil’s underdeveloped Nordeste, Dilma (in Brazil, politicians, like footballers, go by their first name) swept the vote. In the relatively rich South, which accounts for 70% of Brazil’s economic output, Aécio won handily. Similar divisions appear when voters are classified according to dependence on government handouts (high in the Northeast) or years of schooling (high in the South).

Yet there is more to this election than this broad-brush picture suggests. In 1974, when Bacha coined his term, it went without saying that the prosperous and modern Brazil was just a tiny sliver of the total. In 2014, Neves, the candidate of “Belgian” Brazil, won more than 48% of the vote.

That reveals how much the country has changed in the last four decades, and how large and influential its middle class has become. It was precisely that middle class, fed up with allegations of corruption and a sluggish economy, that turned against the ruling Workers’ Party (PT) and voted for change.

But it is also striking that despite the weak economy – growth will barely average 1.5% during Rousseff’s first term, and the economy is now in a technical recession, having contracted in two consecutive quarters – Dilma and the PT managed to retain the support of Brazil’s tens of millions of poor and excluded citizens. This is partly because the recession has not made a big dent in employment, which means that many households have yet to feel the impact.

Hmm.. So unlike India the middle class was unable to throw the ruling party.

She was also helped by the commodity cycle:

Dilma was also helped by the commodity super-cycle, which filled Brazil’s coffers and made it possible to run ambitious cash-transfer programs that helped pull countless families out of poverty. These policies were actually launched by former President Fernando Henrique Cardoso of Neves’s Party of Brazilian Social Democracy (PSDB), but are associated in the popular imagination with Dilma’s political mentor and predecessor, Luiz Inácio Lula da Silva, also of the PT. By claiming (with no evidence) that Aécio would cut these popular programs, Dilma dealt the PSDB a sharp electoral blow.

Using commodity revenues to obtain political support is not a strategy unique to Brazil. In Argentina, Bolivia, Ecuador, and Venezuela, populists have tried the same trick. So have the vastly different governments of the conservative Sebastián Piñera and the socialist Michelle Bachelet in Chile. And the similarities do not end there.

Now that the commodity boom is ending, all of these countries face the challenge of building a new economic engine to sustain growth and create jobs. Without the commodity windfall, they must develop new sectors that can produce new goods and services, requiring new sets of skills and new types of infrastructure.

Brazil all over the place as of now..A quick change of fortune.

One keeps wondering that those who leave an economy in so called good shape do any favor to the new incoming leader. You suddenly get into all kinds of problems and realise the growth was not as good as it was estimated..Reality check sets in and before you realise,  recession/slow growth is in. The blame goes to the new govt and one keeps remembering the older one..

Infact and ironically it is much better to leave a weak economy so that the new person can announce some thigs here and there. If it improves all the credit goes to the new person and if now, the blame goes to the previous governments.

Paradoxes of policy economics..

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