GDP: 100-75=25

August 31, 2006 · 0 comments

I had lunch with Ana who pointed me to the heavyweight of Brazil as an economical power. Brazil is big, and Brazil is rich; admitted. But let us open our eyes and have a look at reality. Brazil is only on the eleventh place of the GDP ranking. Belgium features on the 17th place. Brazil barely a bit more has twice the amount of GDP of Belgium.

Amazing, not? This amazing big country, with 1800% more people then Belgium and all the richness in it’s soils?
And when we look at the GDP per capita, Brazil is low ranked on the 56th place, after France, Italy Germany,… Slovenia, Estonia, Chzech Republicn Croatia, Botswana and Uruguay. Ana’s solution to Brazil’s problem is a ‘redistribution of the Brazilian wealth’. Como? The only solution to give Brazil a real future is an annual growth of 6 or 7%. And people who read the Estado de Sao Paulo newspaper of last August 22nd read the article on the latest Central Bank Survey, which showed that market analysts have revised their estimate for GDP growth this year downwards just under 3,5%. The article says that the government is not doing enough to boost the economy and that policies are lacking to encourage economic growth such as making more credit available. The article also criticized the rising government expenditure (what Ana refers to as ‘redistribution of wealth’). The article calls for a ‘courageous’ reform of the political system and the social security system (read: lowering it) and giving priority to infrastructure.This is what I refer to as ‘academic masturbation’. There is simply no will for any such reform, not in the left, not in the right and not in the center. The real issue is plain stupidity.

Example: Lula is bragging on the news that intrests are declinaing in Brazil. I have read no article whatsoever or no person being savvy enough that the guy is actually plainly putting his country up. In primary school they learn you counting, right? What counts in financial markets is the interest you pay after inflation, or net interest. If you count that interest, it remains the same at 10%. No difference at all. Which brings us to one of the real problems of what Lula did by re-issuing loans at 14%. With all his ‘gifts’ (actually: 10 million families he ‘bought off’ by giving them Bolsa Familias), he made the Brazilian Government debts growing at 20% annual rate. 20%? In ech sane country in the world they are shrinking, at least every European country. This means that Brazil doubles (!!) its debts every 4 years (without even spending that money properly). Because… what do they do with all the money they borrow? Well, for 75% they pay the outrageous interest rates they offer. I mean, does it needs a scientist to see what disaster is appearing in the not-so-distant horizon?

But Ana has a point, statements like these make no positive contribution. The country will have to face it one day, but for now the problem is brushed under the carpet and Lula and the majority of the Brazilians masturbate themselves with the idea that the economy is having glory days.
Statistics are like a bikini… what they reveal is subjective and what they hide is vital.
That being said, we love Brazil:

The problem is the “smartness” of the Brazilian Government : they buy back $ debts with a 7 % rate and issue new Reais debts with a 14 % rate.
And they believe and proclaim that they owe LESS ! Funny.
Even worse : they back back a depreciating currency with lower interests and issue new debts in a strong currency (Reais) with a much higher interest rate.