Wednesday, May 25, 2005

Economising Brazil

To Oxford where the summer is in full swing, the undergraduates are decked out in ridiculous sub fusc dress on their way to exams and my friend at Magdalen College cowers under the pile of books ahead of his own exam next week. Not ideal territory for two seminars, one on Fernando Henrique Cardoso’s economic policy, the other on PPPs in Brazil by visiting professors Albert Fishlow and Juarez Freitas respectively.

Fishlow ran through the three features of the Real Plan which helped deliver Cardoso the presidency in 1994 and 1998. But according to Fishlow, his big mistake was to opt for a fixed exchange rate rather than a floating one. Unlike the Argentines, the Real Plan was never conceived as being rigidly tied to the dollar. The consequence of fixing the exchange rate meant that when the economy and foreign reserves declined before his second election victory and into his second administration, ultimately forcing devaluation in 1999.

But it wasn’t all Cardoso’s fault. There were issues which he couldn’t control, including the apag√£o (blackout) after rainfall dropped, thereby reducing energy output (Brazil relies on water for 87% of its energy needs), the Argentine crisis and the US recession. Fishlow was also critical of Cardoso’s failure to seriously grapple with the social sphere, arguing that while primary education was expanded, quality issues remained. Too many students failed to pass while not enough teachers had full qualifications. As for pensions and social security, the measures passed were redundant by the time they entered the statute book while lack of economic growth meant public expenditure fell during his second term. Yet if we’re to think that this marks Cardoso as a failure, Fishlow and Leslie Bethell (the Centre for Brazilian Studies professor and chair) was keen to stress that Lula faces similar structural problems.

And so to Juarez Freitas’s seminar on PPPs at the above-mentioned Centre later in the day; unfortunately it was slightly dry, with Freitas emphasising its legal features passed in last December’s law. As a legal professor at PUC and the Federal University in Porto Alegre, that was probably understandable. Consequently, he didn’t delve too deeply into the political and economic reasons to go with PPP.

Nevertheless, Leslie persuaded him to say a few things about the political and economic background surrounding PPPs. At present they are concentrated on infrastructural and sanitation projects, mainly because these areas are the ones most in need of investment. Railways and ports are the main targets; the logic being that building up these areas will assist economic development and export potential. Furthermore, Freitas pointed out that following the privatisations of the 1990s (which Fishlow had earlier pointed out had been attained at premium value compared to their current values), there was nothing left to sell; PPPs are therefore the next logical step. In addition, PPPs are being implemented not only in Britain, but in Spain, Portugal and Croatia, which suggests it is a global phenomenon.

Freitas is at the start of his research into PPPs, much of which will concentrate on comparing the Brazilian model with that in Britain. Between the two he noted that while the Brazilian model needs bolstering in the regulatory sector, it was legally stricter in tone than that in the UK. In the subsequent question and answer session I asked why it was the case: was it to do with the nature of the Brazilian left currently in government? To what extent had it been modified in its passage through Congress? And how had the private sector responded to this interpretation? Unfortunately though, the questions were never answered, as Freitas took others over mine. And there wasn’t even a chance to ask him afterwards, as I had to make the long walk from Summertown to Magdalen to meet a friend for dinner.

Still, got to see the deer in the College’s park. And I made a useful contact whose work I’ve read on Cardoso and his relationship to social democracy.

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