gestão da dívida pública - no brasil

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reviStade economa mundial 23, 2009, 227-244

impactof economic criSiSon Brazilian economy

impactodElacrisisEconmicaEnlaEconomadEbrasil

Paulo Paiva

President o the BDMGppaiva@bdmgmggovbr

Recibido: junio de 2009; aceptado: octubre de 2009

aBStract

Brazil took advantage o both the reorms conducted since theimplementation o Plano Real and the expansion o world economy toinitiate a new cycle o economic growth Dierently rom the historical trend

in Latin America, the prices o commodities rose and exports broke recordscontributing to the rise in revenue and output growth This growth, which wasaround 5% per year, was the basis or the establishment o social policieswhich contributed to reduce poverty and promote social inclusion

By aecting Brazil, the crisis broke the cycle o economic growth and putsocial developments at risk Even though the country still maintains a betterposition, i compared to the majority o the Latin American economies, theeconomic down turn interrupts an important process o economic and socialdevelopment

Keywords: Brazil; Latin America; Economic Growth; Crisis; Ethics;Development

ISSN: 1576-0162


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reSumen

Brasil se aprovech de las reormas llevadas a cabo desde la implementacin

del Plano Real y la expansin de la economa mundial para iniciar un nuevociclo de crecimiento econmico A dierencia de la tendencia histrica deLatinoamrica, los precios de las commodities crecieron y las exportacionesrompieron los records contribuyendo al crecimiento de ingresos y outputsEste crecimiento, el cual ue de alrededor del 5% anual, ue la base para elestablecimiento de polticas sociales que contribuyeron a la reduccin depobreza y promovieron la inclusin social

En lo que se reere a Brasil, la crisis rompi este ciclo de crecimientoeconmico y puso en riesgo el desarrollo social Aunque el pas an conservauna mejor posicin, si lo comparamos con la mayora de las economas

latinoamericanas, el descenso econmico interrumpe un importante procesode desarrollo econmico y social

Palabras clave: Brasil; Latinoamrica; Crecimiento Econmico; Crisis; tica;Desarrollo

JEL Classifcation: F43, O1, I0


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1 introduction

Ater a long period o expansion, the international economy entered aproound crisis, the extension o which is still unknown Quick assessmentsaround the summer o 2008 suggested that such crisis was restricted to thenancial market and industrialized countries Emerging economies would notbe contaminated by the crisis and would ollow their recent path o growth

Ater a ew months it was veried that the crisis was global, aecting equallyboth industrialized and emerging economies, interrupting a cycle o growtho the international economy The credibility in nancial market relations wasruptured, the fow o goods and services in the international market was reduced

and economic growth rates dropped considerably According to InternationalMonetary Fund (IMF) more recent estimates1, the world output that had beengrowing around 5% per year until 2007 will fall by 1.3% in 2009. In the Euro

zone the all could be over 4% and in the United States could be about 28%Brazil, ater a long period o economic instability, took advantage o the

reorms conducted since the implementation o Plano Real and the expansiono world economy to initiate a new cycle o economic growth Dierently romthe historical trend in Latin America, commodity prices increased and exportsbroke records contributing to the rise in revenue and product growth Thisgrowth, which was around 5% per year, was the basis or establishing social

policies which contributed to reduce poverty and promote social inclusionBy aecting Brazil, the crisis broke the cycle o economic growth and

put social developments at risk. Estimates of Brazilian GDP growth for 2009

suggest drop o about 13% comparing to an increase o 51% in 2008 and56% in 2007 Even though the country still maintains a better position, icompared to the majority o Latin American economies, its reduction interruptsan important process o social and economic development

This article tries to evaluate the impact o the crisis on the perormanceo the Brazilian economy First, it discusses some o the main antecedents

1 For more recent estimations see IMF (2009), World Economic Outlook, http://www.imf.org/external/

pubs/ft/weo/2009/01/pdf/text.pdf.


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230 paulo paiva

o the crisis, including its ethical root Then, it tries to show the channels orcrisis propagation, its impacts on the Brazilian economy and the answers romeconomic policies adopted in the country to alleviate its eects The article

ends with a ew conclusions

2 it iSan ethical criSiS

The episode o the bankruptcy o Lehman Brothers bank on September 15,2008, can be considered the immediate start o the nancial crisis that shookthe world in the last months In act, that deepened the crisis that had alreadystarted with the impact o high risk assets known as sub-prime o real estatemortgages in the United States

The remote antecedents o the crisis date back to the exuberant tendencieso the nancial market since the nineties, borrowing an expression used inanother context by ormer president o the Federal Reserve Bank (FED) o theUnited States, Alan Greenspan, now considered by many a villain in this story

To better understand the crisis one should now remember the mainelements o the period o ast expansion o the nancial markets

Firstly, there was a long period with very low interest rates in the UnitedStates, which stimulated the expansion o domestic credit and also theleveraging o commercial and investment banks

Secondly, Chinas incorporation to the World Trade Organization (WTO) had

an extraordinary impact on the international commerce with the rise in thedemand or products rom many countries, especially demand or commodities(oil, coal, metal ore, other minerals, soy, etc.). Chinas growth contributed very

much to the acceleration o the growth o emerging economiesThirdly, due to the expansion o world economy and the aorementioned

elements, there was an increase in the prices o commodities and shares atstock exchanges in almost every country, both industrialized and emerging

Fourth, the development o derivatives in the nancial market, purpose owhich was to manage risks, to ensure greater stability into uture markets, tooer greater protection to investors and, at the same time, opening possibilities

o higher gains in relation to traditional products in the nancial marketFith, the low degree o regulation in the nancial market, especially over

investment banks, hedge unds and movements outside the balance sheets ocommercial banks, has allowed a boom in credit oer everywhere

The expansion cycle under these circumstances started reaching their limitswhen infationary pressures began to require measures to contain the growtho demand It bears emphasizing the ast increase in the price o oil and othermineral commodities and ood between 2006 and the beginning o 2008

It was soon veried that the development o derivatives under low regulation,instead o assuring greater stability in the nancial market was the immediatecause o the start o the crisis

Market trust and credibility were then broken


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231impactof economic criSiSon Brazilean economy


That, however, was not new In other circumstances the same scenario wasset out It is worth remembering episodes occurring around the turn o thecentury, with Enron and Worldcom companies, to name just two Attitudes with

no transparency rom their executives impaired shareholders and drove thestock market to an enormous crisis at that occasion

In essence, it seems to be very similar to what occurred more recently witha number o operations in the nancial market

At the root o both crises there was the lack o ethics in the conduct omarket relations There was the lack o the basic principles o governance,such as, transparency, responsibility, right to equal access to inormation andaccountability

This kind o behavior is attributed to individual sel interest inherent to theoperation o the market It does not seem to be the Adam Smith understanding

Besides individual sel interest and institutions building, Smith believed thattrust in market relationships was essential It is worthwhile to go back to AdamSmiths inspiration as I did in an article published in this Journal, no slo la uerza

de la ley, sino la uerza de la confanza, Las relaciones del mercado dependem,

sobre todo, de la construccin de entendimientos, de reglas, compromisos y

acciones aceptados y ejercidos por todos, indistintamente. Esto va ms all de

los incentivos objetivos o subjetivos inherentes a las operaciones del mercado

y ms all de los trminos escritos de los contratos. Quero resaltar este punto:

las instituciones son importantes y la leyes tenen um papel importante en

el ordenamiento de los mercados, pero no son necesariamente sufcientes.

Aparte de las instituiciones, estn los valores morales aceptados por todos

y que garantizan el perecto y permanente relacionamiento entre individuos e

instituciones. Es la confanza mutua que solidifca las relaciones y garantiza su

estabilidad (Paiva, 2004:211-212)There does not seem to have any doubt about the ethical railty at the

root o the crisis, which reaches the markets nowadays Commendable eortsto minimize its eects are being made In the case o the episodes involvingcompanies at the beginning o this decade, the United States` Congressreacted rapidly approving the Sarbanes-Oxley Bill imposing stricter control

or companies listed in the stock market Principles o good governancerecommended by the IMF or monetary and scal management o countriesand the Basel Agreements oering criteria to control the exposure o banksare examples o attempts to oer more secure governance in nancialmanagement

However, there is still not an institution that can supervise nancialrelations between markets o dierent countries Maybe there is a need ora new international nancial architecture A challenge that is not trivial, butopportune nowadays

Institutional advances are eectively important, but I understand that above

all the ethical issue should be at the agenda o discussions or the constructiono a new era in international nancial relations


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3 the criSiS iS GloBal

Initially it was thought that the crisis was only limited to the nancial market

and was caused by assets constituted by the American sub-prime mortgagesIts eects rapidly reached the nancial markets o Europe and Asia Aterthat, it aected the real economy, with a drop in the growth o industrializedeconomies

In the American case, the estimates o the National Bureau o EconomicResearch (NBER) already indicated that the expansion cycle had reached itspeak in December 2007 (NBER, 2008:1-6) Since then a process o economicslowing down took over

It was also thought that the crisis would not reach emerging economies,that is to say, there would be a decoupling in the economic cycles o emerging

economies in relation to the industrialized economiesIt was not what happened All o them were hit The all in industrialproduction o emerging economies was much more accentuated in the lastquarter o 2008 in countries like Korea, Hong Kong, Mexico and Brazil

chart 1: induStrial production, 2006-2008, euro zone, uSa and Brazil

In the Brazilian case, we can see what happened in comparison to theUnited States and the Euro zone by analyzing Chart 1 While in these areasthe industrial production have been dropping since 2007, though it have

accelerated in the last quarter o 2008, in Brazil, on the other hand, theindustrial production was expanding, keeping this trend until the end o therst semester o 2008 The drop was severe ater September last year


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It seems to be a pattern o what happened in most emerging economiesThe economic cycles converged and the crisis, then, took its global

dimension

4 criSiS propaGation channelS

The crisis reached emerging economies through a number o channels atboth supply and demand sides

On the supply side, rstly through the nancial markets The stoppage othe American and European money fows eliminated nancing mechanisms orexport in emerging countries, cut credit acilities or banks rom those countriesand practically closed operations or banking institutions in industrialized

countries that operated in emerging countriesWhatever credit remained came at a very high price or borrowersSecondly, through the stock market Accompanying the drop in the prices

o commodities, the price o stock ell rapid and deeply The stock exchangesbecame unstable and in order to meet the needs in their countries o originand earing the risks, oreign investors abandoned their assets positions in thestock exchange o emerging countries ampliying the drop in those markets

Thirdly, through export The demand or commodities ell, thus aectingexport and, as a consequence, the production in emerging economiesdropped In the case o Brazil, the reduction in demand or mineral products

and industrialized products, such as iron and steel products, had a signicantimpact on mineral and manuacturing output

Internally, credit restriction amplied the eect o the crisis Banksrestricted credit and elevated interest rates in a high risk environment Inter-bank operations almost stopped totally aecting the solidity o small andmedium banks Finally, total lack o trust ruled

Credit reduction, many companies with loss o assets due to the all inthe prices o commodities and stock, and, still, increase o uncertainties withregard to the uture constituted actors that determined the all in the oer ogoods and services

When it comes to demand, there was also a restriction High unemploymentrates, lack o credit and uncertainties regarding the uture were the ingredientsor retraction in consumption, especially o durable goods which depend a loton nancing

The result was a rapid deceleration o economic growthAs one may observe in Chart 2, ater a period o instability in the rst hal

o this decade, the Brazilian growth domestic product (GDP) entered a cycleo expansion as o 2005 In 2008, the expectation was a rate close to 6% peryear However, the behavior in the ourth quarter compromised the expansiontrend. The result was a growth lower than last years, interrupting the cycle of

expansion, though at a level above the average o the eighties, nineties and therst hal o the nineties


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234 paulo paiva

chart 2: Brazil: Gdp and Gdp per capita annual Growth rateS (2000-2008) (yearto year)

-1

0

1

2

3

4

5

6

2000 2001 2002 2003 2004 2005 2006 2007 2008

GDP GDP per capita

Source:IBGE

Chart 3 shows that the GDP kept growing in the rst three quarters othe year and that the deep all o the industry, which went rom a positivegrowth o 36% in the third quarter to minus 74% in the last quarter was themain responsible or the drop in GDP o 36% in the last quarter, which turned

around the GDPs expansion trend.

chart 3: Brazil, 2008: Gdp SeaSonally adJuSted Growth rateS (quarter to quarter) By

economic SectorS

-8

-6

-4

-2

0

2

4

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

Agricult. Industry Services GDP

Source: IBGE

Chart 4 shows that the sectors o capital goods and durable goods, whoseaster growth was set apart rom the others as o the second semester o 2003,


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were also responsible or the accentuated drop in industrial production Thereduction in other sectors was more moderate

chart 4: Brazil: induStrial productionBySectorS, 2003-2008 (BaSe: Jan 03=100)

At the margin, the Brazilian GDP had been growing above 6% In the rstquarter, the accumulated growth of the last 4 quarters was 5.9%, in the second

quarter it was 60%, and in the third it reached 65% In the last quarter, aspreviously seen, the accumulated growth ell to 51%, less than the previousyears and the accumulated in the previous three quarters

chart 5: Brazil, 2006-2008, Gdp annual Growth rate (quarter to the SamequarterofpreviouSyear)

0

1

2

3

4

5

6

7

2006

1Q

2006

3Q

2007

1Q

2007

3Q

2008

1Q

2008

3Q

GDP Q/Q

Source: IBGE


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As shown in Chart 5, since the third quarter o 2007, GDP annual growth,measured by the variation over the same quarter o the previous year, wasincreasing By the end o 2008, it ell rom 68% in the third quarter to 13%

in the ourth quarter

5 howBrazil reactedtothe criSiS

Apparently, the crisis seems to have aected Brazil more strongly on thereal side o the economy, rather than in the monetary side o it

On one hand, Brazil was much better nancially prepared than in previouscrises It is worth mentioning the main elements which strengthened Brazilianeconomy to ace crisis

In addition to a ew reorms that since the eighties started the modernizationo public management, the implementation o a program or currency stabilizationin1994, the Plano Real, established a new standard for Brazilian economy.

In 1995, a Program was implemented to incentive the restructuring of the

nancial market2, which provided or a clean and sound nancial system inBrazil Insolvent banks were sold or extinct, there were mergers and acquisitionsand commercial banks owned by Brazilian states, with rare exceptions, wereliquidated and their good assets were sold to private banks The rotten assetswere segregated and the states themselves attempted their recovery, outsidethe books o the new banks Ater the implementation o that program Brazilian

banking institutions became more capitalized and strongerThe Securities and Exchange Commission (CVM), which had been created

in 1976 under Law 6385/76, was modernized and consolidated in 2001,

under Law 10303/01, and had a undamental role in the supervision andcontrol o the capital market Probably, in regard to governance, regulation andsupervision, Brazil has one o the better and more modern stock exchangesamong emerging economies3

The Central Bank o Brazil kept on perorming its unctions o supervisionand regulation o the nancial system with a competent team o proessionalsAs ar as banking supervision is concern, Brazil adopted the Basel principles I

and II Administration o Brazilian Central Bank has a long history o de actoindependence rom government

On the side o public administration, a scal responsibility regime wasimplemented with the signing o Complementary Law 101 in 2000, whichlimited indebtedness by the states and cities, and instituted principles andrules or scal management

In addition a program o privatization was able to take away romgovernments responsibility steel companies, telecom companies, some

companies on the energy sectors to mention some

2 The program related to private banks was called PROER and one related to public banks, PROES3 BOVESPA, Brazilian stock exchange, has very modern standards o Corporative Governance


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These reorms made the nancial market more solid and scal managementmore balanced

On the other hand, coherent macroeconomic policies, which are based on

the oundations o monetary stability and scal equilibrium have been adoptedand persist until today A mechanism to control prices by means o infationtargeting, associated to a scal program which generates enough surplusto initially contain and, then, reduce the net public debt to Gross DomesticProduct ratio are complemented by a policy o foating exchange rate

These pillars o macroeconomic policies, which begun under Itamar Francoadministration, were established by Fernando Henrique Cardoso governmentand have been ully maintained in Luiz Incio Lula da Sillva administration, thusconsolidating the credibility o the Brazilian economic management

Moreover, one o the most important elements perceived by the market

in the Brazilian public management, when it comes to economic policy, is itscontinuity

As a result o both economic policy reorms and management, the countryrode the winds o the expansion o international economy and retook its growthtrajectory As a consequence, international reserves grew, currently exceedingUS$ 200 billion The public debt to GDP ratio ell considerably and public debtin oreign currency turned negative, which means that the country went romexternal debtor to external creditor

It is not hard or one to understand that the country received the investmentgrade, with the Brazilian risk alling to levels way below the country risk

standards among Latin American countriesThese conditions were essential to alleviate the impacts o the crisis in

BrazilAs soon as the crisis reached Brazil, the ederal government took quick

measures to minimize its impactsFirstly, the Central Bank opened credit lines to nance exports An eort

that was more comprehensive with support rom the American Federal Reserve(FED), which opened a line o credit or Brazil, which by means o exchangeswap operations has been contributing to reduce the all in the oer o creditin dollars to its exporters

Exchange auctions undertaken regularly by the Central Bank aimed atmaintaining a reasonable level o nancing to exports and also or allowingBrazilian companies to renew their credit line in the international market

Secondly, Central Bank has used a large volume o the compulsory stockto supply banks with money, and subsequently has reduced o basic interestrates aimed at assuring liquidity in the banking market

Due to the previous monetary instability and specic conditions o theBrazilian nancial market, the Central Bank has maintained or several years aconservative nancial policy, with relatively high levels o compulsory depositsand basic interest rates at relatively high levels As a consequence, credit asproportion o the GDP in Brazil is relatively low, reaching an average o 40% in2008 That policy strategy turns out to be unctional at crisis time


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Faced with the crisis, the Central Bank has now counted on ecientinstruments to manage the monetary policy There is still room or the use omonetary policy, dierently rom a number o industrialized countries, where

the basic interest rate is already around zeroHowever, the reduction in the basic interest rate4 has a ew limitations that

need to be overcomeOn one side, the lack o credibility and increasing risk in banking transactions

prevent that the reduction o basic interest rate reaches in its totality to therates oered to the borrowers So the decline o the market interest rate issmaller that that o SELIC There are still restrictions to inter-bank operationswith small and medium banks These banks are currently exposed to pay muchhigher rates or getting new deposits, whether rom bigger banks, whether romthe public Recently, Central Bank has oered a deposit guarantee und or

up to 20 millions oreais in order to allow medium and small banks be morecompetitive in getting deposits rom the public

On the other side, the institutional structure o the Brazilian nancialmarket still carries traces o the indexation period For instance, public bondsare still been carried in the sort-run due to the absence o a long-run marketor public bonds; mismatch between liquidity and investment gains (there aresome saving accounts with high liquidity earmarked to long-term investment,as in the case o housing); and, still, tax burden and administration ee onnancial operations, especially on applications in unds whilst there are taxexemptions or deposits in savings accounts linked to the housing system bothwith the same liquidity time Those distortions in the nancial market mayimpose a roo or the basic interest rate The reorm o such structure is achallenge that is necessary and urgent, even though complex and o dicultpolitical consensus5

Thirdly, Central Bank eased the purchase o small and medium privatebanks by larger private banks At the beginning o the crisis, this decision wasan indication that, i one bank could get in liquidity or solvency, it could be soldinstead o go to bankruptcy

Finally, through specic legislation, public ederal banks6 were authorized

to purchase portolios and banks That measure had an important impactsignaling to the market that no bank in Brazil would be liquidated Besides,by authorizing ederal banks, eventual purchases by them would not aectthe scal equilibrium because they would not be made with tax resources orgovernment indebtedness Not directly due to these measures, there was theusion o Ita Bank and Unibanco Bank, two o the larger banks in Brazil, Banco

4 Basic interest rate in Brazil is called SELIC5 Political difculty comes mainly in the case of special public savings (caderneta de poupana), which

is addressed to middle and small savers6 Two ederal owned commercial banks were authorized: Banco do Brasil and Caixa EconomicaFederal


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do Brasil bought Banco NossaCaixa7 and acquired almost 50% o BancoVotoratim`s shares

Thirdly, the government adopted credit and scal measures to stimulate

economic activity Whereas on the monetary side the government actedcorrectly and the results were apparent, on the scal policy side the resultsare not so clear

Brazil has a tradition o keeping its tax burden relatively high or LatinAmerican standards Nowadays, the weight o taxes represents approximately36% o the GDP The country did not use the period o economic expansionto adopt an anti-cyclical scal policy On the contrary, it allowed ongoingexpenses to expand at a rate ar above GDP growth So, with no reductiono public expenses there is not much room or decreasing the tax burden,unortunately

Then, in the scal area, the government adopted some measures osupport to some sectors by means o tax exemptions The automobile sectorwas one o the rst beneciaries Then, exemptions went to durables goodsand housing sectors

Although those measures have some impact on consumption in the shortrun, as the crisis is general, support to specic groups may result in privileges,changes into the structure o relative prices, with no guarantee that the incentiveto resumption o the economic activity will be permanent

The government has been reacting to pressure and demand rom sectorswith more political power without a comprehensive strategy8 One o the

consequences of such behavior may be a reduction in governments capacityto use its scal policy in a more ecient mannerOn the side o public credit expansion, the measure seems to be correct,

but the action o public banks is very limitedAs Brazil has a public development Bank (BNDES)9, actions to expand

credit have been taken The government increased BNDES capitalization,which started to play a more relevant role in nancing the Brazilian economy,also entering the area o credit concession or working capital unrelated toinvestment projects

BNDES has limited resources and i it goes to the market searching or

unding will get it at higher cost as compared to the cost o it basic und: taxresources, under the responsibility o National Treasury10Banco do Brasil, the larger public commercial bank, is a joint-stock

corporation, with shares distributed in the stock market, and compete orresources in the market with private banks Any deviation rom the principleso good governance may aect the value o its shares

7 Nossa Caixa was owned by the state o So Paulo and one o the remaining state owned banks8 One can also argue that Government has reacting with a view on political dividends, as next yearwill be general elections in Brazil9 BNDES or Banco Nacional de Desenvolvimento Econmico e Social is the largest nationaldevelopment bank in Latin America10 The cost o tax resource is a special interest rate, so called TJLP, which is lower that SELIC, NationalTreasury opportunity cost


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As result o those measures, the participation o public banks on the totalcredit grew from 34.2% from March of 2008 to March of 2009, while the

participation of private domestic banks fell from 44.0% to 41.9% and of

oreign banks ell rom 218% to 205% at the same period11For instance, Chart 6 shows the impact o the increase o public banks in

oering credit in Brazil ater the crisis For an average growth in credit o 68%,from September 2008 to March 2009, the growth of public banks reaches 15.8

%, while that o oreign banks was 31% and o domestic private banks was o16% Regarding only private domestic banks, credit rom larger banks increasedby 108% while rom small and medium banks ell by 60% in the same period

chart 6: Brazil, percent chanGe in credit from SeptemBer 2008 to march 2009, ByoriGin

ofthe Bank

0

2

4

6

8

10

12

14

16

Total Public banks Foreign banks Domestic banks

Source: Central Bank o Brazil

In short, Brazil may attenuate the impacts o the crisis on the nancialsector thanks mainly to the reorms undertaken ater Plano Real and thecontinuity in the macroeconomic policy management o the last governments,regardless o their political aliations

In act, the continuity o macroeconomic policies is viewed by the market

as the Brazilian highest assetApparently the most serious impacts shall take place on the side o realeconomy The prices o commodities have been signicantly reduced, exportsdecreased and the industrial production ell sooner and with greater speed thanexpected. For this reason, GDP growth estimates for 2009 by the market are

between zero and minus 15%, against the 51% gain o 2008 The reduction oeconomic activity has perverse social eects Unemployment rate increases andpublic revenue decreases, which might aect negatively the social programs andparticularly those o income transer, such as Bolsa Famlia12

11 Data present by Central Bank o Brazil12 Some states have already adjusted their budget Federal Government is maintaining its expenditureat expense o reducing primary surplus


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6 concluSionS: coordinated Searchfor SolutionS

Dierently rom the belie in the middle o 2008, the crisis is global and

contaminated all countries, whether industrialized or emergent Even thoughrom the point o view o its immediate antecedents one may consider a crisisendogenous to the center o the capitalist world and, as a result, its solutionshould derive rom actions relative to the American economy, the resumptiono the economic activity at an international level depends, on one side, oncoordinated measures at dierent levels and, on another side, on domesticactions

Reorganization o the banking sector and resumption on the Americaneconomy growth are required conditions, but not enough or economy stabilityat an international level

Since the thirties, this is the rst major crisis in a global world characterizedby a high interdependence amongst dierent economies Thus, it makes perectsense to seek solutions by means o cooperation among dierent countriesThe G20 orum is an advance in this regard Firstly, because it expands thedecision group by including emerging countries, dierently rom what occurredin 1933, also in London, at the International Economy Conference which

reunited only leaders rom the North Atlantic Secondly, because it occursin a world predominantly democratic, with no imminent confict o globalproportions among major powers

Thirdly, because there was an indication that countries will continue to

support ree trade instead o taking protectionist measuresImportant challenges are in the agenda or discussion and need to be aced,

some o which were previously mentionedThe rst one reers to the international nancial architectureThe Bretton Woods agreement was capable o oering to the world

institutions such as IMF and the World Bank to support countries during crisisregarding the balance o payments and nancing to long-term development

The WTO is the proper orum to discuss issues related to trade amongnations However, there are no institutions authorized to handle nancialrelations The need exists or an institution to govern and supervise nancial

relations at international level, as the ones within the domestic scope, notnecessarily equal in all aspects, which is capable o minimizing recklesspractices in the nancial market which might exposure at risk the stability oeconomies

The second one reers to the review o the regulation and supervision obanking activities, revisiting the Basel agreements and setting orth criteriaor their adoption by the countries With regard to the same theme, it seemsproper to make fexible procedures regarding banking secrecy in a number otax havens

The third one, already under implementation, concerns the strengtheningo the IMF and the World Bank to assist countries which were heavily aectedby the crisis More dicult, but necessary, is to ace the question o IMF


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governance, opening up or higher weight o some emerging countries withtheir higher participation on the institution capital

In the same line, regarding Latin America an increase on IBD capital is need

Fourth, there is a need or the coordination o economic policies which,without compromising the autonomy o countries, may oment the resumptiono international trade and, as a result, economic growth

Fith, the crisis suggests that, in addition to institutional reorms and correctpolicies, the world needs a shock o ethics in the nancial and capital marketResponsibility, transparency and accountability are the basis or such shocko ethics

Internally in Brazil, the challenges or the government are signicantOn the one hand, it must maintain the pillars o macroeconomic policy,

a undamental actor to ensure credibility and trust rom the international

market On the other hand, utilization o the scal policy, by combining scalequilibrium with measures which might stimulate the resumption o economicgrowth I believe that the scal eort should concentrate on inrastructureinvestments, either directly or through partnerships with the private sector, inactivities whose elasticity in relation to the product is relatively higher Withregard to Brazil, the transportation segment is one o the most appropriateIncreasing the eciency o transportation sector will increase the eciency othe whole economy13 The government shall have to promote a reduction incurrent expenses program so as to prevent the impairment o social programs

To maintain programs o social saety net is essential in times o crisisIn order to keep social programs a reduction on current expenditures asproportion o GDP is need

The priority to oment growth must be based on the generation o jobpositions

Moreover, looking at a ar away uture, a new cycle o economic growthshall be committed to (i) environmental sustainability, exploring new renewablesources o energy (Brazil achieved major accomplishments in this eld), to(ii) social sustainability (Brazil is on its way to promotion o social inclusion),investing in education and health, and to (iii) domestic security (there is still

a lot to be undertaken in order to reduce urban violence and to contain theexpansion o drug trac)Finally, it behooves society as a whole to claim the consolidation o

principles to ensure greater responsibility, transparency and accountability inthe management o public resources and market relation

13 Another important sector in inrastructure is energy, whose investments come mainly rom privatesector or public companies that do not depend on tax revenue


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referenceS

IMF (2009): World Economic Outlook, Washington, DC Available on: http://

www.imf.org/external/pubs/ft/weo/2009/01/pdf/text.pd NBER (2008): Determinants o the December 2007 Pick in Economic Activity,

National Bureau o Economic Research Available on: http://wwwnberorg/cycleshtml

Paiva, P (2004): Sobre tica, Economa y Gobernanza, Revista Mundial deEconomia 10/11, 203-219.


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