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IMF and World Bank see trade as Brazil’s big opportunity
Augusta Saraiva . Oct 25, 2019
Photo: Arquivo APPA
With over 90 percent of the world experiencing slow economic growth, uncertainty filled the corridors of the International Monetary Fund (IMF) and the World Bank during the 2019 Annual Meetings. Over the space of a week, leaders and experts from all over the world gathered in Washington D.C. to seek solutions for this widespread economic stagnation.
The situation in Brazil is especially worrisome, said IMF Chief Economist Gita Gopinath. The international organization announced the country is expected to grow only 0.9 percent in 2019—a substantial drop compared to initial predictions of 2.5 percent. Ms. Gopinath went on to say that while Brazil has seen some recovery since the 2015 recession, “more needs to be done.”
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<p>To overturn the current scenario, both the World Bank and IMF recommended the country build a stronger trade system and increase international cooperation. The IMF <a href="https://www.imf.org/en/News/Articles/2019/07/25/NA072519-Six-Charts-on-Boosting-Growth-in-Brazil">suggested</a> that the potential <a href="https://brazilian.report/power/2019/06/28/mercosur-eu-free-trade-deal-announced/">EU–Mercosur</a> free-trade deal—along with adherence to Organization for Economic Co-operation and Development (OECD) standards—could make Brazil a more <a href="https://brazilian.report/money/2018/03/01/joining-oecd-mean-brazil/">business-friendly nation</a>.</p>
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<p>Still, for some economists, the benefits of opening the country up to trade goes beyond reviving growth and invigorating productivity levels. Martín Rama, the World Bank Chief Economist for Latin America and the Caribbean, says it could help Brazil increase its engagement with developed economies, projecting itself on the global market.</p>
<p>“Being exposed to world markets is a good thing,” Mr. Rama told <strong>The Brazilian Report</strong>, in Washington D.C. “If you think of being <a href="https://brazilian.report/money/2018/11/14/brazil-trade-china-commodities/">exposed to China</a>, growing by exporting to an economy that grows at 6 percent cannot be a bad thing. What we advocate for is deeper integration with advanced, sophisticated economies.”</p>
<h2>Beyond Mercosur</h2>
<p>Published in October, the latest edition of the World Bank’s semiannual report on Latin America and the Caribbean showed the region as being the least exposed to trade in the world. Due to what Mr. Rama describes as Mercosur’s “inward orientation,” member economies tend to be even more closed. <a href="https://brazilian.report/money/2018/07/18/isolated-brazil-economy-trade/">Brazil has the highest trade barriers</a> in Latin America, followed by Argentina and Venezuela—currently suspended from Mercosur.</p>
<p>“We are not catching up,” says Mr. Rama. “A few years ago we were right in the middle, between the advanced economies and the ‘Chinas’ and ‘Indias’ of the world. That was taking us somewhere, now we’re not going anywhere.”</p>
<p>However, he does see the potential EU–Mercosur trade deal as a chance for recovery. The World Bank report showed that South–North trade agreements lead to faster economic growth, and Mr. Rama says an EU–Mercosur agreement could be even more advantageous as “it goes far beyond what traditional trade agreements do.”</p>
<p>“These deeper agreements cover competition policies, the treatment of state-owned enterprises, the ratio of public procurement, environmental standards,” Mr. Rama says, adding that these factors “are almost as important, if not more important, than trade itself.”</p>
<p>Brazilian economist Otaviano Canuto, a senior fellow at the Brookings Institution and former World Bank Vice President, said that though the outcome of the Argentinian elections and the protectionist rhetoric from some EU members might be impediments to the agreement, the deal is key to the Brazilian economy.</p>
<p>“We might see Brazil, together with Uruguay and Paraguay, moving ahead with the agreement, even if Argentina does not join,” said Mr. Canuto.</p>
<h2>“More needs to be done”</h2>
<p>Besides pushing for an EU–Mercosur deal, Mr. Canuto says that complying with OECD standards would be advantageous to Brazil, as in order to join the group, countries have to “show that they share similar rules and institutions with all OECD countries.” </p>
<p>“The advantage for a country like Brazil is not so much on the path of trade, but much more on the institutions,” Mr. Canuto said. “Conventions against bribery, including tax and financial transparency, no discimination laws against foreign investors … These are rules that need to be embedded in law or at least in regulations, and that make the economy operate more like a market economy.” </p>
<p>Mr. Rama agrees, adding that even though the World Bank does not have an official position on Brazil’s bid to join the OECD, “everything that helps countries adopt standards of advanced economies should be helpful.”</p>
<h2>Peace on trade</h2>
<p>In a milieu of political polarization and economic stagnation, new IMF Managing Director Kristalina Georgieva urged countries to use trade as a means to cooperate and grow. Mr. Canuto says Brazil can take advantage of this moment to open up its economy and accelerate growth. Yet, in order to do so, he believes the country’s position in regard to trade “has to move from one of [clientelism] to one of partnerships.” </p>
<p>“What we need at this moment is less uncertainty in regard to trade overall,” he said. “We need peace on trade.”
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