The Brazilian Federation: Facts, Challenges and Prospects

Type:
SCID Working Paper 149

Author(s):

Published:
08/1/02

Region:
Latin America

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Abstract:
Following decades of protectionism and a powerful interventionist state, the Brazilian economy suddenly exposed itself to external competition and went through a fast process of privatization. The institutional reforms implemented in the nineties helped to stabilize the economy and create a friendlier environment for attracting investments and fostering growth. Despite of uncertainties that still loom in the horizon, regarding the prospects for reconciling sustainable development and macroeconomic stability, the overall balance of the results achieved in the past decade is positive.

In the process of moving from a closed, state controlled economy to an open privately run one, the federal regime affected and was affected. Indeed, the greater the degree of sub national governments interests in proposed reforms, the more difficult was to put them into place. In some cases, they had to be lured into accepting changes that reduced state and local autonomy. Even in cases where federal interests were not so evident, the power of state and local governments in the National Parliament give room for bargaining over compensation for less autonomy or financial losses.

Of the reforms that stood high in the agenda for modernizing the Brazilian economy during the nineties, three deserve special attention: Privatization, Public Employment & Social Security and Taxation. Given the central role of healthy public finances in the strategy for macroeconomic stability, these reforms were object of an intense debate and much disagreement. Of these, privatization was the only case of success so far. Some advances were made in reducing future claims on the national budget, but the Tax Reform remained impervious to a call for alleviating the excessive burden on the competitiveness of the Brazilian economy.