After 15 Years There's Not Much to Show for Brazil's National Water Policy
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THE BRAZILIAN ECONOMY Economy, politics and policy issues • MAY 2012 • vol. 4 • nº 5 FGV A publication of the Getulio Vargas Foundation Foreign policy Foreign trade Brazil and the U.S.: The bankruptcy of Mercosur A lot to talk about Argentina Domestic policy Argentina: On the slippery slope How should the State Participation to full nationalization? Fund be shared? Mexico Interviews Reinventing itself Rubens Ricupero: Brazil, environmental power José Júlio Senna: Interest rates and growth Cloudy waters After 15 years there’s not much to show for Brazil’s national water policy. F O U N D A T I O N The Getulio Vargas Foundation is a private, nonpartisan, nonpro- Economy, politics, and policy issues fit institution established in 1944, and is devoted to research and A publication of the Brazilian Institute of teaching of social sciences as well as to environmental protection and sustainable development. Economics. The views expressed in the articles are those of the authors and do not necessarily represent those of the IBRE. Reproduction of the Executive Board content is permitted with editors’ authorization. President: Carlos Ivan Simonsen Leal Letters, manuscripts and subscriptions: Send to Vice-Presidents: Francisco Oswaldo Neves Dornelles, Marcos [email protected]. Cintra Cavalcanti de Albuquerque, and Sergio Franklin Quintella. Chief Editor Vagner Laerte Ardeo IBRE – Brazilian Institute of Economics The institute was established in 1951 and works as the “Think Managing Editor Tank” of the Getulio Vargas Foundation. It is responsible for Claudio Roberto Gomes Conceição calculation of the most used price indices and business and consumer surveys of the Brazilian economy. Senior Editor Director: Luiz Guilherme Schymura de Oliveira Anne Grant Vice-Director: Vagner Laerte Ardeo Assistant to the Editor Louise Ronci Directorate of Institutional Clients: Rodrigo de Moura Teixeira Editors Directorate of Public Goods: Bertholdo de Castro Vagner Laerte Ardeo Claudio Accioli Solange Monteiro Directorate of Economic Studies: Márcio Lago Couto Art Editors Directorate of Planning and Management: Ana Elisa Galvão Vasco Medina Coeli Marcelo Utrine Comptroller: Sonia Goulart Célia Reis de Oliveira Contributing Editors Kalinka Iaquinto – Economy Address João Augusto de Castro Neves – Politics and Foreign Policy Rua Barão de Itambi, 60 – 5º andar Thais Thimoteo – Economy Botafogo – CEP 22231-000 Rio de Janeiro – RJ – Brazil Contributing writer Tel.: 55 (21) 3799-6799 Email: [email protected] Lia Valls Pereira Web site: http://portalibre.fgv.br/ Marcia Carmo - Argentina IBRE Economic Outlook Coordinators: Regis Bonelli and Silvia Matos Team: Aloísio Campelo André Braz Armando Castelar Pinheiro Carlos Pereira Gabriel Barros Lia Valls Pereira Monica de Bolle Rodrigo Leandro de Moura Salomão Quadros IN THIS ISSUE 3 THE BRAZILIAN ECONOMY 18 41 11 33 NEWS BRIEFS Finance and Environment, explains to than 50% of Argentines approve the 4 Company defaults and jobless rates Kalinka Iaquinto why investing in the move, which reversed President Kirchner’s rise … industrial output falls … CPI soars green economy is necessary for Brazil to recent fall in popularity, investors and cor- … private roads get more investment … achieve competitiveness, productivity, porate executives are far less enthusiastic, Amazon anticrime operation launched and efficiency and the unique strengths seeing it as part of a series of controversial … Congress defies Rousseff on land law on which Brazil can build. He also dis- moves. Brazilian investors are wary. … Cardoso on the current state of cor- cusses how economic and environmen- FOREIG N TRA D E ruption … Obama-Rousseff talks produc- tal concerns might be balanced, and tive … Clinton says Brazil’s anticorruption what the government’s role should be. 38 The bankruptcy of Mercosur efforts are a model … benchmark rate Lia Valls Pereira looks at what Argentina’s DOMESTIC POLICY falls … primary budget surplus posted. recent nationalization move portends for 22 How should the State the region and explains why Brazil can FOREIG N POLICY Participation Fund be shared? only lose by being identified as belong- 8 Brazil and the U.S.: A lot to talk about The Supreme Court has given Congress ing to the same group as Argentina. A succession of high-level meetings until January to set new criteria for how While Brazil has been active in promoting highlights the growing economic impor- states will share in the Participation investments in the region, any economic tance of the relationship between the Fund. Taking into account the history of discipline Mercosur created over the two largest economies in the Western the fund, Claudio Accioli discusses the years has been virtually abandoned. Hemisphere. The two share a mutuality resources at stake and what the options Recent events are reinforcing this trend. of interests not only bilaterally but in the are, and explains why Congress is not IN TERVIEW global arena as well. Yet the U.S. is unwill- likely to meet the deadline. ing to endorse a seat on the UN Security 41 Interest rates and growth Council for Brazil. João Augusto de Castro LATI N AMERICA José Julio Senna, former director of the Neves examines the reasons. 26 Mexico reinvents itself central bank, describes to Claudio Accioli Not long ago the largest economy in the context for some recent central bank COVER STORY Latin America was Mexico, not Brazil, but and government decisions related to 11 Cloudy waters when China joined the World Trade Orga- interest rates and the trade-offs they may In passing the National Policy of Water nization, Mexico lost U.S. markets and imply; he predicts “a long period of low Resources (the Water Law) in 1997, Brazil investment. Solange Monteiro describes interest rates.” He also makes recom- acknowledged that water is a valuable how Mexico has since been diversifying mendations about what Brazil can do to but limited natural resource. However, its economy and sees the dim future improve its growth prospects. 15 years later the results fall short. for Pemex. José Gerardo Traslosheros Solange Monteiro consults experts to Hernández, Mexico’s consul general in ECO N OMY determine where there has been prog- São Paulo, compares the two economies. 44 IBRE Economic Outlook ress and what still needs to be done. Recovery of the Brazilian economy Thais Thimoteo describes the even 33 Argentina: On the slippery slope continues to be slower than expected. worse situation of sanitation treatment. to full nationalization? The industry decline in March was a Now that Argentina has almost com- cold shower, dampening prospects for a IN TERVIEW pletely nationalized energy producer YPF, stronger second-quarter recovery. Hopes 18 Brazil: Environmental power where will it go next? Marcia Carmo in for improved economic activity must Rubens Ricupero, former Minister of Buenos Aires reports that though more now turn to the second half of the year. May 2012 The Brazilian Economy 4 BRAZIL NEWS BRIEFS ECONOMY POLITICS Brazil jobless rate rises in March Trade balance in surplus in April, Brazil land law a defeat for Although Brazil’s jobless rate rose but imports rise Rousseff slightly more than expected in The Brazilian trade balance had a Congress has eased rules on March, the local labor market remains surplus of US$881 million in April, the the amount of forest farmers strong. Unemployment rose to 6.2% Ministry of Development, Industry must preserve, a victory for the in March from 5.7% in February, and Foreign Trade reported. This powerful agriculture lobby and the government’s statistics agency was 53% lower than in April 2011 a political defeat for President IBGE said. Real wages, or salaries (US$1,861 billion). April imports Dilma Rousseff, though the bill still discounted for inflation, rose 1.6% totaled US$18,685 billion compared requires that millions of hectares month-on-month to R$1,728 (US$919) to US$18,312 billion in 2011; exports of cleared land be replanted. and gained 5.6% from a year earlier. were US$19,566 billion, 8% less than Farmers have been responsible (April 26) in 2011. (May 2) for much deforestation in the Amazon and other swaths of Domestic credit grew in March March industrial output falls environmentally sensitive land. Domestic credit growth increased Output of Brazil’s mines and factories Rousseff may still veto the bill, from 17.3% year-on-year in February fell unexpectedly in March as they one of the most controversial to 18% in March as central bank rate struggled with high inventories and in recent years. The bill made it cuts stimulated corporate lending. increased competition from imports. through the lower house despite (April 26) Production declined by a seasonally adjusted 0.5% in March compared Rousseff’s overwhelming majority Company defaults rise with February, and by 2.1% compared there because of pressure from In the first quarter of 2012, the to March 2011. (May 3) powerful agribusiness interests. corporate default rate was 21.1% (April 25) higher than it was a year earlier, Inflation soars according to Serasa Experian. The Offical IPCA inflation was 0.64% Corruption higher than under 18.8% default growth rate in March month-on-month and 5.1% year-on- Cardoso? compared to the same month last year in April. The main contributors to In an interview with Folha year was the highest increase for rising prices were personal expenses, newspaper, Fernando Henrique March in two years. (April 30) apparel, and housing. (May 9) Cardoso said corruption has increased since he was