from zombie to walking dead

from zombie to walking dead

The OECD published its Brazil 2018 survey just as the country released figures showing its economy grew 1 per cent last year, its first year of expansion since 2014.

But before celebrating the revival from economic zombie to high-growth economy, it is worth looking at some of the distortions illustrated in the survey. They hint at the deep malaise that still lies at the heart of Brazil’s economy.

Exhibit one is how much Brazilians overpay for consumer goods and services, a factor that increases inequality and costs in the economy. For instance, a humble Toyota Corolla in Brazil, which produces the vehicle, costs more than $45,000. This compares with Mexico, which also produces Corollas but where they cost just over $30,000, or in the US, where they cost $20,000. Other Brazilian price distortions include mobile voice services, which in Brazil are nearly twice as expensive per minute as those in Argentina and eight times US rates.

The list goes on. Manufacturing companies in Brazil spend an average of nearly 2,000 hours a year preparing their taxes compared with 800 for Venezuela and less than 200 for the US. Brazil has the highest applied import tariffs of the countries listed in the report, about double the level of China and four times that of the US. Brazil has not gained new markets for its exports in recent years. In terms of imports and exports as a percentage of gross domestic product, Brazil is the least open country on the OECD’s list, less even than Argentina.

On the fiscal side, Brazil’s budget is a study in how not to develop a country. In 2016 it spent 16 per cent of its budget on interest payments on government debt, which is held by investors, business and upper middle class savers. This was more than on education (12 per cent) and health (12 per cent). In fact, interest payments were the second biggest outlay in the budget, beaten only by social benefits (35 per cent), which were mostly pensions. Given that Brazil’s pension system is one of the world’s most unjust, benefiting disproportionately relatively better off public servants who can retire in their mid-50s, Brazil’s budget actively benefits the wealthy over the poor and leaves no money for investment.

The OECD report predicted Brazil’s GDP growth would pick up to 2.2 per cent this year and 2.4 per cent in 2019. This is a walking dead recovery for an economy emerging from its worst recession in history and looking to at least return to its previous size.

Brazil has undertaken some reforms, says Jens Arnold, one of the authors of the report. These include reducing the subsidy implied in loans from development bank BNDES. If Brazil is to rediscover its animal spirits, the next government will have to become a champion at unwinding more of the economy`s terrible distortions, starting with pensions.


  • Mexico expressly asked Washington to exclude it from any steel tariffs and will have “no option” but to retaliate with tariffs of its own if the US does not, a source close to the Mexican position said after US president Donald Trump announced plans to levy a 25 per cent tariff on steel imports.

  • Uber welcomed a decision by Brazil’s lawmakers to approve less-stringent regulations, after initial proposals threatened to upend operations in one of the world’s biggest markets for car-booking apps.

  • Anheuser-Busch InBev, the world’s biggest brewer, has reported a 64 per cent increase in full-year net profits, boosted by savings from its SABMiller acquisition and a rebound in Brazil, one of its biggest markets.

  • Commodity trader Mercuria has asked the US Treasury for permission to buy out a $1.5bn loan between Russia’s Rosneft and Venezuela’s state oil company, which had raised the prospect of Moscow taking control of refineries on US soil.

What we’re reading

Quote of the week

“Fake news didn’t start with Trump, it started with me in 2014” — Marina Silva, Brazilian presidential candidate and environmentalist who took 22m votes in general elections four years ago, and who is running third in the polls ahead of October’s vote.

Chart of the week

Brazil remains on the sidelines of global trade — OECD Economic Surveys: Brazil 2018

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