The neoliberal economic model implemented in Brazil since 1990 has led to economic bankruptcy and social devastation in the country. This model has been shown to be unfeasible and has failed under multiple presidents. The current economic recession, deindustrialization, insolvency of government entities, high public debt, business bankruptcies and mass unemployment demonstrate the failure of this model. The neoliberal model should be replaced with a national economic development model focused on reducing interest rates, increasing infrastructure investment, controlling the exchange rate and capital flows, increasing exports, and prioritizing policies that encourage sustainable growth and reduce inequality.
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Neoliberalism and economic and social debacle of brazil
1. 1
NEOLIBERALISM AND ECONOMIC AND SOCIAL DEBACLE OF BRAZIL
Fernando Alcoforado *
The neoliberal economic model implemented in 1990 is largely responsible for bringing
Brazil into economic bankruptcy and social devastation today. The practice has
demonstrated the unfeasibility of the neoliberal economic model in Brazil inaugurated
by President Fernando Collor in 1990 and maintained by Presidents Itamar Franco,
Fernando Henrique Cardoso, Lula, Dilma Roussef and Michel Temer. The current
economic recession, the sharp deindustrialization of the country, the insolvency of the
Union, states and municipalities, the excessive increase of the federal public debt,
widespread bankruptcy of companies and mass unemployment demonstrate the
unfeasibility of the neoliberal model implanted in the country. To overcome the crisis in
which Brazil is debating, the Michel Temer government has adopted measures aimed at
finding the balance of public accounts with PEC 241 to deal with the insolvency of the
Union and then to continue the failure neoliberal economic model. It is an irrationality
to try to keep the failed neoliberal economic model when it should restructure the
Brazilian economy on new bases.
The neoliberal economic model should be replaced in Brazil by the national economic
development model of selective opening of the Brazilian economy that should
contemplate the adoption of an economic policy that immediately prioritize: 1) the sharp
reduction of interest rates to encourage investments in productive activities ; and 2) the
retaking of development by investing R$ 2 trillion in economic infrastructure (ports -
R$ 42.9 billion, railways - R$ 130.8 billion, highways - R$ 811.7 billion, waterways
and river ports - R$ 10.9 billion, airports - R$ 9.3 billion, electric sector - R$ 293.9
billion, oil and gas - R$ 75.3 billion, basic sanitation - R$ 270 billion and
telecommunications - R$ 19, 7 billion) and social (health sector - R$ 83 billion / year,
education sector - R$ 16.9 billion / year and the popular housing sector - R$ 160 billion)
through a public-private partnership.
Only in this way will it be possible for Brazil to grow economically at high rates and to
overcome the current mass unemployment that reaches the record level of 27.7 million
workers, according to the IBGE PNAD survey. Nicola Pamplona published in Folha de
S. Paulo on 5/17/2018, under the title Falta trabalho para 27,7 milhões de pessoas, diz
IBGE (Missing work for 27.7 million people, says IBGE), available on the website
<https: // www1-hoja-uol-com-
br.cdn.ampproject.org/c/s/www1.folha.uol.com.br/amp/mercado/2018/05/falta-trabalho-
para-277-milhoes-de-people-diz-ibge.shtml>, presents the information that the under-
utilization rate of the workforce, which includes the unemployed, people who would
like to work more, and those who gave up looking for work, hit a record in the first
quarter, reaching 24.7 percent. In all, there are 27.7 million people in these conditions,
the largest contingent since the beginning of the historical series in 2012. Of these, 13.7
million have sought employment, but have not found. The rest are underemployed
because of insufficient hours worked, people who would like to work, but did not seek
employment or gave up looking for work.
Besides making the situation of the country socially unsustainable with the
underutilization of the current labor force, the floating exchange rate policy imposed by
the neoliberal model will further aggravate the Brazilian economy with the strong
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upward trend of the dollar that may occur due to increase in inflation in the United
States that will cause the Federal Reserve to raise interest rates. Higher interest rates in
the United States attract resources now invested in other countries, including Brazil.
With fewer dollars in circulation in Brazil, the dollar's price tends to rise. To compete
with the United States in attracting dollars, the Brazilian government would have to
raise interest rates on government bonds that are fixed income assets issued by the
National Treasury to finance Brazil's public debt. The consequence of this policy will be
the highest increase in Brazil's huge public debt.
About exchange rate policy, it should be noted that the exchange rate is crucial for the
growth of an economy. It should be noted that one of the policies that leveraged China's
exports was the fixed exchange rate determined by the government in the light of
national interests. It is important to note that with a floating exchange rate tied to
foreign exchange bands, as Brazil does, the Central Bank must daily intervene in the
foreign exchange market to make the dollar close to the quotation determined by the
Central Bank. The option for an exchange rate tied to foreign exchange bands is
expensive because this regime does not inspire confidence in international investors - as
a devaluation can occur at any time - and given the continuing need to always draw
dollars to keep international reserves at a minimum comfortable, interest rates have to
be very high, contributing to raising public debt that tends to become explosive.
In view of the above, it is urgent to adopt the national economic model of development
of a selective opening of the Brazilian economy that would allow Brazil to assume the
direction of its destiny, unlike the neoliberal model that makes the future of the country
dictated by the forces of the market all of them committed to international capital. The
adoption of the national economic development model of selective opening of the
Brazilian economy would require the adoption of the measures described below:
• To break with the neoliberal model to bar the denationalization of the Brazilian
economy, to reverse the deindustrialization of the Brazilian economy and to raise and
sustain Brazil's economic growth.
• Make the selective importation of raw materials and essential products from abroad to
reduce the country's foreign exchange expenditures.
• Increase public and private savings in order to raise the investment rates of the
Brazilian economy.
• Drastically reduce bank interest rates or bank spread to encourage investment in
productive activities and create the conditions to raise private savings and investment
rates in Brazil to promote sustained economic growth in Brazil.
• To make foreign investments preferentially in the export-oriented areas and in those in
which domestic companies are not able to supply the domestic market.
• Transform Brazil into an export platform.
• Maximize Brazilian exports to expand the country's foreign exchange earnings and
boost the growth of the national economy.
• Adopt the fixed exchange rate policy in place of the floating exchange rate in force to
protect the domestic industry and control inflation.
• Control the inflow and outflow of capital to avoid currency evasion and restrict the
access of speculative capital in the country.
• Audit public domestic debt, renegotiate with public debt creditors the lengthening of
interest payments, and keep the Selic rate low to reverse the bursting trend of domestic
public debt.
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• Renegotiate with domestic public debt creditors the lengthening of interest payments,
raising taxes on the financial system and taxing large fortunes for the Brazilian
government to overcome the fiscal crisis and to have the resources to raise the rate of
public investment in the deficient economic and social infrastructure of Brazil.
• Drastically reduce public expenditure on federal, state and municipal governments and
the legislative and judicial powers.
• Create regional development structures integrating federal, state and municipal
governments to rationalize public sector actions and provide fiscal incentives to reduce
imbalances in regional development.
• Provide tax incentives to attract private investment in less developed regions of Brazil.
• Encourage and reinforce research and development activities and the country's
education system.
• Reduce social inequalities by contemplating the adoption of measures that contribute
to meeting the needs of the population.
• Adopt measures that contribute to overcome the environmental problems of Brazil.
* Fernando Alcoforado, 78, member of the Bahia Academy of Education, engineer and doctor in
Territorial Planning and Regional Development by the University of Barcelona, university professor and
consultant in the areas of strategic planning, business planning, regional planning and planning of energy
systems, is the author of 13 books addressing issues such as Globalization and Development, Brazilian
Economy, Global Warming and Climate Change, The Factors that Condition Economic and Social
Development, Energy in the world and The Great Scientific, Economic, and Social Revolutions that
Changed the World.