HUMAN DEVELOPMENT REPORT FOR BRAZIL - 1996

 

Throughout the decade of 1980, says the Report, the Brazilian economy was marked by a tendency towards stagnation and imbalance, resulting mainly in extremely high and growing inflation rates. This tendency continued in the first years of the following decade.

This period reflects the imbalances caused by the foreign debt crisis, by the persistent deficits in the public sector and by high inflation. It characterises the draining away of the development strategy based on the substitution of imports and in the strong intervention of the State in productive activities.

Between 1980 and 1992 the economy grew only 1.25% per year. And since the population increased at greater rates, the per capita income fell 7.6% in the period. A long-term tendency was also noted in the increase of unemployment and reduction of investments.

The recent experience shows that those countries with better economic performances and higher growth rates were those with lower inflation rates. Inflation leads to a general lowering of economic efficiency and makes it hard to identify opportunities for economic investment for the private sector. This causes uncertainty and induces those in charge of the economy to take measures of immediacy that end up impeding the economy from growing in a sustainable way. Besides, inflation tends to elevate interest rates (thus discouraging even more the investments and the level of activity), creates distortions such as the disproportionate growth of the financial system, reduces public investments, and affects the public services adversely.

From another angle, inflation hurts the salary earner in the way that the participation of salaries in the national income is inversely proportionate to the inflation rate. It also increases the salary differential, as indexation tends to be lower for workers with a low income level. In the same way, it penalises the poorer classes more heavily with the "inflation duties", since these segments, who have no access to financial instruments, have no way of protecting their income and preventing it from inflationary corrosion.

Graph 4.4 shows this correlation between the evolution of the inflation rate and poverty. It shows an increase of both, between 1980 and the first half of 1994, in the population below the poverty line in the six principal metropolitan regions of the country.

Therefore economic stability is a necessary condition—although not sufficient in itself—for the confrontation against poverty.

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