Brazil’s social divide, which seemed almost bridged in the 2010s, is now a widening fault line that threatens the country’s growth potential if long-term structural and educational reforms are not undertaken.

The pandemic has taken its toll on the lives of the world’s poor, exacerbating a bad situation. For the rich around the world, the story was different. And in Brazil, the country that was already proud of the title of the most unequal in Latin America, the World Bank’s Gini coefficient measuring inequalities reached its highest ever recorded figure, 0.674, in the first quarter of 2021.

While the incomes of the poorest 40% have declined by a third in 2020, the richest 10% of employees lost only 3% of their income. In the meantime, the stock market has hit records, and commodity prices have pushed up measures of economic growth.

“It’s a paradox,” said Marcelo Nery, director of the Social Policy Center at the Fundação Getúlio Vargas, a Brazilian think tank and higher education institution. “The GDP has been better than expected, the currency has appreciated, the stock market is up. Even formal Job creation improved.”

Only these indicators hide deeper problems. “Globally, we are seeing investors’ risk appetite return, while investing also becomes cheaper in Brazil, attracting more people to the capital markets,” said Laura Karpuska, professor of economics. in FGV-São Paulo. “But the economic fundamentals have deteriorated, and markedly.”

4.1% softer than expected contraction of GDP in 2020 was followed by a 1.2% increase in the first trimester of 2021 (compared to the previous quarter), bringing the Brazilian economy back to its 2016 level, the lowest of a deep recession. Unemployment is at a record by 14.7%, and nearly 20 million Brazilians cannot find or have given up looking for work. Even informal work is rare as COVID continues to spread across the country.

“The bulk of low-income jobs are in high-contact services, where we have yet to see a recovery,” said Otaviano Canuto, former executive director of the World Bank and IMF. “And there is a risk that behavioral changes, like home entertaining, could last much longer than the pandemic. “

Much of the optimism in Brazilian capital markets and in macroeconomic projections is propelled by the agriculture and mining sectors. According to CEPEA, a research institute, the agribusiness sector grew by 24% in 2020, and now represents just over a quarter of brazil GDP. Brazilian exports of crops and meat totaled $ 100 billion last year, while mining exports increased by 31%.

But experts warn that agribusiness does not have a multiplier effect on the economy as a whole. The production of raw materials is not labor-intensive and the more job-rich manufacturing sector has contracted since 2009. Meanwhile, inflation is on the rise, pushing down the debt-to-GDP ratio – a measure observed by financial investors – but taking a heavy toll on consumers, especially the poor.

Emergency cash transfers of around $ 100, authorized by President Jair Bolsonaro’s administration, helped informal workers and the poor get through the COVID-19 crisis, but hope evaporated when , despite the ongoing pandemic, payments have been abandoned end of 2020.

“We saw poverty levels drop by half last year, to 4.5%,” Nery said, “only to triple after transfers stop.”

In March 2021, 16% of Brazilians were at or below the poverty line. “We have been generous, but not wise,” Nery said. “We didn’t prioritize testing or vaccines, and basically rejected education completely.”

Government spending on transfer programs reflects, for Nery, a predictable pattern as the presidential elections approach. “Poverty numbers are still falling, followed by a rapid increase,” Nery said, adding that the risk now is that the government will try “grandiose solutions beyond our fiscal capacity”.

The divergent realities of the Brazilian economy — improving macroeconomic numbers and top incomes as more Brazilians fall into low income categories, including extreme poverty– jeopardize the potential for future growth. “The multidimensional reality of this income, wealth, access and representation gap is a major cause of our existing vulnerabilities,” Karpuska said.

Inequality even made an appearance on Brazil’s Happiness Index, which suffered the biggest drop between 2019 and 2020 in a comparative study of 40 countries around the world – driven by a steep drop. decrease welfare among the poor.

Today, even the IMF warns that inequalities seriously affect long-term growth and economic stability. “There is a direct link between the masses capable of consuming and economic growth,” Canuto said.

The social cost of inequalities

Social gaps breed social unrest, as Chile and Colombia can attest. They also deprive countries of the creative and productive potential of citizens which is a vital source of future wealth.

“Less human capital will mean less productivity and capacity for growth without triggering inflation,” Karpuska said. Future gaps are also expected to be boosted by school closures and education linked to the pandemic budget cuts, who mainly affected poor children. The percentage of young Brazilians who neither work nor study rose from 20% at the start of the decade to 29% during the pandemic. Experts say this pandemic generation, deprived of the benefits of education, will lower productivity and impact the economy as a whole.

Bolsa Família, a cash transfer program for families living in extreme poverty, has helped keep children in school but, without employment opportunities, families are struggling to exit the program. Canuto says only the children of current beneficiaries will have a chance to break the cycle of poverty – if the public sector can provide quality education and health care.

To combat the destructive force of inequalities, Brazil needs comprehensive long-term policies, especially in the areas of education and digital inclusion. But in the midst of an ongoing political and institutional crisis and on the eve of a presidential campaign, concerted action seems unlikely. from Brazil share of the world economy has fallen from 4.3% in 1980 to just 2.4% today. If the country continues to sabotage the future of its own people, this downward trend is sure to continue.


Cecilia Tornaghi is editor-in-chief of QA

Keywords: Poverty and inequalities

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The views expressed in this article do not necessarily reflect those of Americas Quarterly or its editors.

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