October 24, 2013

LATAM Report October 2013: Brazil

Brazils emergence as a significant economic force over the past decade generated noteworthy investor enthusiasm. From 2003 to 2008, an amalgamation of principal factors such as: macroeconomic stability stemming from prior reforms in the country, a recovering U.S. economy from its 2001 recession, historically low global interest rates, appreciating commodity prices, and rising demand from China set the stage for a sustained period of solid economic growth in Brazil. While most of the aforementioned tailwinds provided a sound incubator for solid economic growth across all BRIC nations during the same period; Russia, India, and China averaged 7.1%, 8.0%, and 11.3% respectably; it was Brazil that more than doubled its rate of growth from 2.0% during 1997-2002 to 4.2% from 2003-2008 according to the World Bank. This improvement was the best among the BRIC nations.

| Rodrigo C. Serrano, CFA | SIPA | Columbia University Master of International Affairs 14 Candidate | New York City, NY | 01-305-510-0181 | rcs2164@columbia.edu

As the 2008 financial crisis approached, many prominent investors and academics, fond of the bullish long-term prospects of the BRIC nations, entertained the decoupling thesis. From the Economist: Yet recent data suggest decoupling is no myth. Indeed, it may yet save the world economy. Decoupling does not mean that an American recession will have no impact on developing countries The point is that their GDP-growth rates will slow by much less than in previous American downturns (Economist: The decoupling debate). While the American downturn and subsequent financial crisis did precipitate a global recession largely debunking the idea that BRIC nations could step in and save the world economy, investor interest in Brazil only intensified when the event seemed like it would be little more than a slight bump in the road in terms of economic growth. Brazils economy registered a scant contraction of 0.3% in 2009, which was then followed the following year by the strongest pace of annual growth in 25 years at 7.5%. Furthermore, Brazils Bovespa index rocketed higher from the nadir of its stock market crash in late 2008 by roughly 129% by the end of 2009, the second best performance among BRIC nations over that period after Russias MICEX index. Despite these impressive performance statistics, since peaking in 2010, economic growth has been widely lackluster, souring investor sentiment and bringing into the spotlight the panoply of structural problems facing Latin Americas largest economy. This extensive report covers a brief economic history of Brazil, a focus on the countrys current economic impediments, and steps for positive future development.

History
Brazils economy is well diversified, having gone through profound transformation beginning in the late 1930s with the establishment of the Estado Novo by Getlio Dornelles Vargas. During this period important building blocks, such as the formation of Companhia Siderrgica National in 1941 and Companhia Vale do Rio Doce in 1942, were established in order to overhaul Brazils largely coffeebased economy, which suffered from a plunge in coffee prices during the Great Depression, into a more diversified modern industrial state. Impetus for reform stemmed from Brazils high vulnerability to terms of trade deterioration, which would lead to capital flight. Economic growth throughout World War II was relatively muted and largely consisted of a recovery in the utilization of excess capacity caused by the Great Depression. This interval was followed by a brief period (1945-1953) of trade liberalization coupled with a fixedexchange rate. These policies precipitated another balance of payments crisis. It was during Vargass second term (1951-1954) that Import Substitution Industrialization (ISI) was strongly embraced. ISI was an economic policy espoused by the Singer-Prebisch thesis of inherent inequality in the world economic system. The policy stressed domestic manufacturing of products in order to replace imports. Various tools were implemented to achieve this goal including: high tariffs to increase the costs of imports to the consumer, discouraging demand; government subsidies to increase a domestic companys competitive advantage versus its foreign competitors; and an overvalued exchange-rate to discourage foreign direct investment, while facilitating purchases of capital goods by domestic companies to invest in domestic industry. Latin American economists, in the era after World War II, argued that structurally the global economy worked in favor of countries in the core of the system and against countries in the periphery. The periphery supplied raw materials and was dependent on the core for markets, investment, credit, and manufactured goods. In general the prices for raw materials and agricultural commodities remained low and the cost of manufactured goods rose. The structural argument was used to promote import substitution industrialization or ISI. Domestic manufacturing was encouraged to replace imports (Blouet p.8). Over the following 3 decades until the 1980s, Brazil would incorporate varying degrees of ISI to nurture its infant industries and diversify its economy. The results of ISI throughout Latin America were mixed in general. Returning to Blouet: Advantages of Import Substitution Industrialization were: 1. Economies become more diversified and less reliant on commodity exports; 2. Manufacturing adds value in the production process and generates income; 3. Industrialization creates jobs and should reduce unemployment; 4. Producing goods at home reduces imports and outflows of currency; 5. Higher protective tariffs on imports generates revenue for governments Disadvantages of Import Substitution Industrialization: 1. Competition from imported goods is lost; Consumers pay higher prices; 2. The licensing, by government agencies, of favored 2

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 manufacturing companies opens the process to political pressure and corruption; 3. Favored companies can allocate the market between them and not compete aggressively; 4. Manufacturers, with a comfortable market share, might have little incentive to invest in the latest technology. Efficiency and the quality of goods lags; 5. ISI usually results in high priced goods, few of which are competitive in export markets (Blouet 146). Brazils industry indeed flourished, transforming from one focused on the production of consumer goods into one with emphasis on the production of heavy industries and their inputs. Moreover, traditional industries, such as food products, textiles, and clothing were replaced by more capital-intensive and value-added industries such as transportation equipment, machinery, chemical production, and appliances. In addition to Companhia Siderrgica National and Companhia Vale do Rio Doce, other prominent companies formed during ISI include: Petrobras (founded 1953) and Embraer (1969). Throughout the late 1960s and early 70s, extraordinary economic growth approaching double digit percentages became dubbed as an economic miracle. The average growth of industrial output between 1945 and 1979 reached 8.8 per annum. The magnitude of structural change in the post-war years can be seen, firstly, by the share of the industrial sector in the Gross Domestic Product (GDP), which grew from 24.1 percent in 1950 to 40.9 percent in 1980 whereas agriculture declined from 24.3 percent in 1950 to 10.1 percent in 1980. Secondly, modern industries such as machinery, electrical materials, transport equipment and chemicals performed particularly well. Their share in manufacturing output jumped from 12.6 percent in 1949 to 43.6 percent in 1980. By contrast, traditional manufacturing experienced a sharp relative decline, the most noticeable cases being those of the food and textile industries, which saw a reduction in their share of manufacturing output from 31.9 and 18.6 percent in 1949 to 13.9 and 6.4 percent in 1980, respectively (Colistete p. 6). The global recession of the late 1970s and early 80s signaled the beginning of the end for ISI. While the policy produced many positives for Brazils economy, 2 pronounced negative features precipitated its demise: chronically high inflation from higher costs of domestically made goods and consistent current account deficits due to an overvalued exchange rate, which were financed with mounting external debt. Before the recession, the expectation from investors financing this debt was that ISI would result in a solid manufacturing base with substantial upside in the export market. Subsequent current account surpluses would then be used to pay back the debt. Unfortunately, Brazils terms of trade deteriorated significantly throughout the 1970s, beginning in 1973. The Organization of Arab Petroleum Exporting Countries (OPEC), which brings together the world's largest producers, cancels exports of oil to countries that supported Israel in the Yom Kippur War against Egypt to Syria. The product's price rose four times higher. Brazil is hampered because it was still a major importer: in the 1970s, about 80% of the oil consumed in the country was imported. The Brazilian miracle begins to slow down and the 3

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 country's foreign trade shows deficit (Brazil Government Website). The situation was further exacerbated with the Iranian Revolution in 1979. The oil price skyrockets again with the Islamic Revolution in Iran (one of the world's largest oil producers) and due to fears of rationing in the United States, which increases interest rates to try to control the domestic crisis. Automatically, Brazil's foreign debt toward the U.S. rises sharply. Moreover, Brazilians face rising cost of fuel and rationing queue at gas stations (Brazil Government Website). While Brazils terms-of-trade was deteriorating, the country still maintained a high rate of growth in 1980. However in 1981-1982 the Brazilian economy finally succumbed to the increasing headwinds of higher interest rates due to the Volker Shock and subsequent falling global aggregate demand, which further dampened the countrys exports. Brazils high external debt came increasingly into focus in the minds of investors as it became progressively clear that high external debt levels in tandem with current account deficits were unsustainable. The issue was brought front and center with the advent of the Mexican Debt Crisis in 1982; investor appetite for emerging market debt dried up. Unable to rollover a portion of its maturing external debt, Brazil was forced to seek aid from the IMF. The IMF delivered aid but with strings attached. Brazils long-standing policy of ISI was to be significantly reversed, paving the way for trade and economic liberalization; meanwhile, austerity was to be implemented to reduce imports. During the same period (1980s decade), many other Latin American economies requested assistance to combat what eventually became a region-wide external debt crisis. This period came to be known as Latin Americas lost decade. While the policy prescription resulted in renewed current account surpluses for Brazil, economic activity remained lackluster and inflation was still a constant problem due to devaluations of the cruzado; stagflation haunted Brazil the entire decade. Brazils 10-yr average GDP growth from 19811991 averaged only 1.65%. Throughout the 1980s, there were numerous unsuccessful attempts to subdue rising prices. The main components of the Cruzado Plan in 1986, the Bresser Plan in 1987, and the Summer Plan in 1989 introduced price freezes and eliminated indexation. However these policies ultimately failed due continued neglect of the countrys dismal state of its public sector budget. High debt levels emerged after the government assumed the external obligations of state-owned companies engaging in high import activity over the prior decades. Furthermore persistent fiscal deficits, resulting from engrained constitutional mandates, repelled investors from national debt and led to high interest rates and a depreciating currency. It was until 1994 when the government finally attacked the main issue of fiscal reform with the introduction of the Plano Real. Fernando Henrique Cardoso, appointed finance minster by President Itamar Franco, introduced the Plano Real which consisted of 3 main components: a balanced budget rule, a moderate process of general indexation, and the introduction of the dollar-pegged Real. Brazilian industry, molded by decades of ISI, was generally not competitive in the global market place. Therefore the plan initially led to large current account deficits due to a substantial appreciation in the real effective exchange rate. However, investors became more tolerant of external 4

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 imbalances given stabilized inflation, the establishment and enforcement of the balanced budget rule, as well as the fading memories of the debt crisis in the 1980s. These factors led to stabilization in macroeconomic conditions. Furthermore, prudent structural and social reforms were initiated by the Cardoso (1995-2003) and Luis Incio Lula da Silva (2003-2010) administrations. The former advanced a privatization program that had been initiated by the Fernando Affonso Collor de Mello administration (1990-1992), improving economic efficiency, while the latter emphasized social development via programs such as the Bolsa Famlia. This program has received worldwide acclaim as a major factor in sharply reducing poverty in the country. On the back of these reforms, Brazil had in place solid fundamentals for longerterm economic growth; however, the positive news didnt end there. The emergence of China in the early 2000s, combined with a recovering U.S. economy after the 2001 recession, and a prolonged period of low global interest rates led to a commodities boom and became a significant long-term tailwind for Brazil. The synthesis of all these factors led to 15 uninterrupted years of growth as well as the emergence of the Brazilian service sector and consumer. However, as has been the case with the rest of the global economy and its major components, the 2008 financial crisis became the trigger that has now exposed the major economic weaknesses of Brazil.

Current Economic Impediments

As a powerful wave of fiscal and monetary stimulus was unleashed to combat the Great Recession, Brazils shallow contraction in 2009 was followed by the countrys best annual growth in 25 years at 7.5%. This initial performance generated much investor enthusiasm. Since then however, economic growth has generally gone south. This disappointing performance has brought attention to a myriad of interrelated factors, which are significantly inhibiting Brazils long-term economic potential. Lack of Competitiveness To begin, a lack of competitiveness, known to locals as the Custo Brasil (Brazil cost), stems from a combination of elements, the most prominent consisting of: high taxes and a complex tax system, a notoriously low level of infrastructure spending, a relative isolation from global trade, elevated wage costs, topped off with an overvalued exchange rate. The high total tax burden, at roughly 36% of GDP according to The Economist, ranks 2nd in Latin America to Argentina and compares poorly with the regional average of roughly 20%. High taxes are passed onto the consumer. An even bigger
> Custo Brasil stems from a combination of elements, the most prominent consisting of: high taxes and a complex tax system, a notoriously low level of infrastructure spending, a relative isolation from global trade, elevated wage costs, topped off with an overvalued exchange rate.
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Source: Bloomberg

Chart: RCS Investments

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 issue is the tax systems complexity, which leads to higher compliance costs for firms. According to the International Finance Corporation and World Banks 2013 Doing Business report, Brazil ranks as the worlds worst in time invested per year to ensure compliance with tax laws at an astronomical 2,600 hours, almost a third of the entire year. To better put this metric in perspective, the second worst offender is Bolivia at 1,025 hours, less than half that time. Another contributor to higher costs is the wretched state of infrastructure, which raises costs for firms as they deal with less efficient means of transportation and production. The statistics are grim. The McKinsey Global Institute estimates the total value of Brazils infrastructure at 16% of GDP. Other big economies average 71%(Grounded; The Economist p. 9). The World Economic Forums 2012-2013 Global Competitiveness (GC) report further corroborates this view. Out of 144 countries, Brazil ranks 107th in the quality of overall infrastructure. Visitors for the upcoming 2014 World Cup will see this sad state of affairs first hand; the quality of air transport infrastructure (ie airports) ranks 134th, or the 7th percentile. Port infrastructure ranks an even worse 135th. Brazilian trade comprises 27% of its GDP, much lower than the 69% South American average according to World Bank 2012 statistics. A major culprit and legacy of ISI, high import tariffs, further leads to increased costs for consumers as well as the emergence of inefficient industry. Again, a look at the GC report slots Brazil in 123rd spot in the Trade tariffs, % duty category. Finally while economic growth may be sluggish, unemployment remains very low at 5.4% for September. A tight labor market adds upward pressure to wages. But this dynamic is only a part of the story. Government policy of large increases in the minimum wage over the past decade, which is set to continue until 2015, is the central underlying impetus. Combining both these ingredients along with what has been a long-term appreciation in the real has led to spiraling unit labor costs. Since 2003 the countrys unit labour costs have doubled, compared with inflation at 67%. In dollar terms they have trebled, thanks to currency appreciation (Grounded; The Economist p. 6).
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Chart: RCS Investments

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Chart: RCS Investments

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 Fiscal Dynamics Brazils unique structural problems extend to an increasing lack of fiscal flexibility. A policy of fiscal expansion is constrained by a deteriorating budgetary situation. Gross government debt as a percent of GDP, at 60% (or nearly 70% according to the IMFs negative definition) is high for a middle-income country. Furthermore, a recently lowered government target for the countrys primary surplus of 2.3% (from 3.1% in 2012) is increasingly looking like wishful thinking. On a rolling 12-month basis, the primary surplus in August was just 1.82% of GDP. A source of the fiscal profligacy is rooted in Brazils pension system. To wit: picture a 73-year-old retired public prosecutor. He is living very comfortably on a generous government pension around 20,000 reais a month, more than ten times the average wage. With three children from a previous marriage and one from an affair, he is now married to a beautiful 30-year-old with whom he has a fifth child. Life is sweet. After 12 more happy years he dies. Naturally his widow is distraught, but her financial future is assured. For the rest of her life she draws almost his full pension, increased annually by at least the rate of inflation. When she dies 38 years later, aged 80, that pension has been paying out for more than a centurymuch longer than her husband had work to earn itAll this means that although Brazil is a young country, it spends on pensions like an old, profligate southern European one. Currently it has only 11 people aged 65 and older for every 100 aged 15-64. The ratio in Greece is 29 to 100. But Brazil already spends 11.3% of GDP on public pensions, not much less than Greece at 11.9% (Grounded, The Economist p.12). The appeal of survivor benefits and thus an elderly romantic partner is so well known that it has brought about the term the Viagra Effect as a lighthearted term for popular high-agedifference couples. Inflation With presidential elections in October 2014, it is unlikely that the Rousseff administration will seriously focus on ameliorating the general problem of growing fiscal vulnerability. Repeated violations of the primary surplus target may lead to increasing investor skepticism on the ability of the government to maintain a sound budgetary framework. This may lead to downward pressure on the real due to capital
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> Brazils unique structural problems extend to an increasing lack of fiscal flexibility.

> The appeal of survivor benefits and thus an elderly romantic partner is so well known that it has brought about the term the Viagra Effect as a lighthearted term for popular high-age-difference couples.

 outflows. In addition to high taxes and tariffs pushing up costs, infrastructure bottlenecks, and a tight labor market pressuring wages, Brazil contends with a high exchange-rate pass through, which is a percentage measure of the change in import prices from a 1% percentage change in the exchange rate between two trading countries. At an abnormally high rate of 20%, according to Eduardo Levy-Yeyati, director of consultancy Elypsis Partners and a former chief economist at Argentinas central bank, a depreciating real has a significant chance of exacerbating an already high rate of inflation, a third major impediment for long-term growth in Brazil. High inflation rates are forcing the central bank of Brazil to raise interest rates at a time of sluggish economic growth; the Selic target rate was recently increased half a point to 9.5%. Higher interest rates may act as a headwind for consumption and investment as the cost of money increases, further oppressing economic growth. Total Factor Productivity The nation-wide protests this summer served as a wake-up call for politicians regarding the adverse effects weighing on total factor productivity1. In the past two decades total factor productivityhas fallen in Brazil but grown in most other countries That suggests Brazil missed out on gains other countries saw from investments in both human and physical capital, or that other improvements that generally come with such investments somehow failed to materialize (Grounded, The Economist p.7). The reason for this occurrence stems from an exceptionally ineffective and burdensome government. An example: the nation spends 5.7% of its GDP towards education, an amount greater than the OECD average of 5.5%, according to the latest available data from the World Bank.

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Source: IBGE

Chart: RCS Investments

> The nation-wide protests this summer served as a wake-up call for politicians regarding the adverse effects weighing on total factor productivity.

1 In this report, it is assumed that the development of human capital falls within the realm of total factor productivity, counter to expanded versions of the neo-classical growth model, which assume that human capital is a direct component of the labor stock.
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Source: World Bank and UNDP Chart: RCS Investments

Y Yet, according to The Economist: That should be enough to give it good schools, but it doesnt Half of all 15-year-olds are unable to interpret or draw conclusions from any but the simplest texts. Two-thirds can manage no more than basic arithmetic. In literacy, mathematics and science alike, only 1% rank as high performers; across the OECD, 9% do (Grounded, The Economist p.7). It turns out that the bulk of the funds goes towards university study, where only a small portion of the youth population benefit. This privileged cohort generally comprises of students from wealthy families able to afford the high costs of private schooling. An education that benefits only a small portion of the population does not maximize the development of human capital and is not a good policy to substantially increase total factor productivity over the longer-term. Another example is the labyrinth of government red tape an entrepreneur needs to navigate to open a business and for investors to redeem recoverable capital from a failed investment. In both categories, Brazil ranks in the 35th and 22nd percentile respectively out of 188 countries in the 2013 Doing Business report. Starting a business takes an average of 119 days, again roughly a third of the year, while settling insolvency takes an eternal 4 years and for only an mean recovery rate of 15.9 cents on the dollar, roughly half the LATAM/Caribbean average of 31%. (Doing Business report, p152). Burdensome policy, which restricts commerce, consequentially leads to diminished productivity from the inputs of labor and capital.

TURKEY' JAPAN' GREECE' SLOVAK'REPUBLIC' CHILE' CZECH'REPUBLIC' GERMANY' LUXEMBOURG' ITALY' CANADA' KOREA' SPAIN' AUSTRALIA' HUNGARY' POLAND' MEXICO' SWITZERLAND' UNITED'STATES' AUSTRIA' OECD'Avg' UNITED'KINGDOM' ESTONIA' IRELAND' SLOVENIA' BRAZIL' ISRAEL' PORTUGAL' FRANCE' NETHERLANDS' BELGIUM' FINLAND' NEW'ZEALAND' NORWAY' SWEDEN' ICELAND' DENMARK'

> Starting a business takes an average of 119 days, again roughly a third of the year, while settling insolvency takes an eternal 4 years and for only an mean recovery rate of 15.9 cents on the dollar, roughly half the LATAM/ Caribbean average of 31%.

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 Inefficient Government Many of the aforementioned factors: elevated taxes and a convoluted tax system, lack of infrastructure spending, lavish pensions, high tariffs, and a regressive education system bring to light the importance of having a more efficient government. The summer remonstrations demonstrate how the current state model is no longer matching the demands of an emerging middle-class. With a tax burden almost double that of the Latin American region and a keen tax authority, termed The Lion partly due to its aggressiveness in ensuring collection, society is indeed contributing its part to the state; however, the state has not given much in return. The cocktail of an overcrowded public transportation system with proposed increases in bus fares was the initial spark that set in motion nationwide protests this past summer. This initial grievance, however, is a symptom of the bigger problem of the governments lack of proper prioritization, exemplified by opulent expenditure on sports stadiums in preparation for the World Cup instead of less myopic government outlays focused on improving the quality of education, health, and transportation for the middle class.

> The summer remonstrations demonstrate how the current state model is no longer matching the demands of an emerging middle-class.

Future Development
Brazil can no longer exclusively depend on the principal factors, a sustained and fundamentally healthy growth in global demand and ever-rising commodity prices, for its ascent onto the global economic stage in the past decade. The global economy remains in the midst of a historic transformation, which I call the Great Global Economic Restructuring. Since the 2008 financial crisis, worldwide growth has occurred on increasingly shaky foundations. No longer can the U.S. consumer act as the primary impetus for global growth as it did for almost 5 decades. China and other large surplus countries must work to reassemble their economic growth platforms towards higher consumption. This ongoing period of transformation will result in feeble and vulnerable international growth. The U.S. economic recovery since 2009 has been the weakest in the post-World War II era, while China continues its dependence on an unsustainable growth model of exceptional fixed asset investment and credit growth for stateowned enterprises. In general, external conditions are unlikely to provide the strong tailwinds for Brazilian growth as they
> Brazil can no longer exclusively depend on the principal factors, a sustained and fundamentally healthy growth in global demand and ever-rising commodity prices, for its ascent onto the global economic stage in the past decade.

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 had done in the past. Brazil will have to create the right internal conditions to drive growth. Lack of infrastructure has resulted in production and transportation bottlenecks, which have lead to goods shortages, loss of trade opportunities, and increased inflation. The republic must expand investment in infrastructure both to increase economic activity in the short-term as well as to enhance total factor productivity over the longer-term via the introduction of more technologically advanced and efficient forms of capital. However it must do so in a more efficient manner by introducing reforms to add clarity for businesses to invest (a streamlined tax system and less red tape) and by bringing private business on board for infrastructure projects. While opponents may argue that augmented spending may stretch public finances; expenditure on infrastructure investment would lead to an increase in total factor productivity, raising marginal returns of both labor and capital. These investments would enhance the economys growth potential and result in healthy long-term debt/income dynamics. Furthermore, the nation must open its economy further to global trade and cooperation. A cozy business climate for protected firms leads to lack of innovation, inefficiency, and increased costs. Indeed government should research how less intervention has led to its prominent agriculture industry. From The Economist in 2010: In less than 30 years Brazil has turned itself from a food importer into one of the world's great breadbaskets The increase in Brazil's farm production has been stunning. Between 1996 and 2006 the total value of the country's crops rose from 23 billion reais ($23 billion) to 108 billion reais, or 365%. Brazil increased its beef exports tenfold in a decade, overtaking Australia as the world's largest exporter. It has the world's largest cattle herd after India's. It is also the world's largest exporter of poultry, sugar cane and ethanol. Since 1990 its soyabean output has risen from barely 15m tonnes to over 60m. Brazil accounts for about a third of world soyabean exports, second only to America. In 1994 Brazil's soyabean exports were one-seventh of America's; now they are six-sevenths. Moreover, Brazil supplies a quarter of the world's soyabean trade on just 6% of the country's arable land No less astonishingly, Brazil has done all this without much government subsidy. According to the Organisation for Economic Co-operation

> The republic must expand investment in infrastructure. However it must do so in a more efficient manner by introducing reforms to add clarity for businesses to invest (a streamlined tax system and less red tape) and by bringing private business on board for infrastructure projects.

> The nation must open its economy further to global trade and cooperation.

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 and Development (OECD), state support accounted for 5.7% of total farm income in Brazil during 2005-07. That compares with 12% in America, 26% for the OECD average and 29% in the European Union. To be sure, this miracle of growth in the industry started with government support with the creation of Embrapa, the countrys agricultural research corporation. But it is imperative for innovation resulting productivity growth that the government opens the country to more competition and international cooperation. Brazils flaws are clear. Commodity prices have been volatile; global growth has been weak and inconsistent. Brazil can no longer depend on these factors for growth. A closer look reveals that internal conditions are progressively becoming Brazils main economic foe. Ironically this is good news as the country is increasingly in a position to take control of its destiny. What is needed is decisive leadership and effective solutions to the long-term problems plaguing the country. Short-term stimulus measures and even supply-side measures such as reduced taxes have clearly not stimulated the economy. Brazil must invest in its own future.

> Brazils flaws are clear. Internal conditions are progressively becoming its main economic foe. Brazil must invest in its own future.

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 References: 1. Blouet, Brian and Blouet, Olwyn; Latin America and the Caribbean: A Systematic and Regional Survey; USA; John Wiley & Sons, Inc. 2010 2. Colistete, Renato, Department of Economics, Universidade de So Paulo USP; Revisiting Import-Substituting Industrialization in Brazil: Productivity Growth and Technological Learning in the Post-War Years; March 2009 3. Central Brazilian government website: Invest section: Timeline of the Brazilian economy: a. http://www.brasil.gov.br/para/invest/timeline-of-the-brazilianeconomy/view_sumario_contatos?b_start:int=15&-C= 4. The decoupling debate; The Economist; 2008 a. http://www.economist.com/node/10809267 5. Grounded: Special Report on Brazil; The Economist; September 28, 2013 print edition 6. Cremaq, Piau; The miracle of the cerrado; The Economist; August 28, 2010 print edition 7. World Bank, International Finance Corporation; Doing Business 2013 10th edition; 8. World Economic Forum; The Global Competiveness Report 2012-2013; 9. World Bank Data

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