Brazil, South Korea: Two Tales of Climbing an Income Ladder

Brazil's economic recovery after the deep 2015-16 recession has been the slowest on record, with GDP per capita last year remaining more than 9% below its pre-crisis peak (Chart 1, right side). The IMF's annual report on the country's economy, released two weeks ago, estimated current GDP to be nearly 4% below its potential level, which suggests insufficiency of aggregate demand (Chart 1, left side). On the other hand, as the slow recovery reflects structural factors, it is necessar ...

Multilateral Development Banks (MDBs) have two financing windows, with different terms, dedicated to low- and middle-income countries. Countries are presumed to cross those windows as their income per capita rises, with middle-income countries (MICs) eventually “graduating” to a non-client status once they reach some criteria. However, due to what may be called “middle-income traps”, such progression toward graduation has been limited to a small number of countries. ...

Without reforms, financial markets’ optimism may crumble – and bring the house down. Judging by the reaction of financial markets, the Brazilian economy started the year at high speed. The real is among the world’s best-performing currencies so far in 2019 and the main stock market index Ibovespa hit a string of record highs leading into last week, when it broke the 97,000-point mark. Future interest rates have fallen sharply.  Foreign investors are buying in as well. The premium ...

If I were to synthesize the current situation of the Brazilian economy in one sentence, I would say: “it is suffering from a combination of ‘productivity anemia’1 and ‘public sector obesity2’". On the one hand, the mediocre performance of productivity in Brazil in recent decades has limited its GDP growth potential. On the other, the gluttony for expanding public spending has become increasingly incompatible with such limits in the potential expansion of GDP, particularly since the ...

The Brazilian economy pays a price in terms of productivity foregone because of its lack of trade openness. A trade opening process would bring an adjustment impact that could nonetheless be mitigated with public policies that facilitate labor mobility and job migration. Benefits from trade opening would also hinge on policy improvements in complementary areas, such as infrastructure investments, business environment and others. The Brazilian economy would benefit from opening trad ...

The spike in US bond yields since mid-April in tandem with the strengthening of the dollar sparked a retrenchment of capital flows to emerging markets (EM), accompanied by a sell-off of assets in some cases. Argentina and Turkey suffered from strong and potentially disruptive exchange rate depreciation pressures in May, with financial markets calming down only after bold domestic policy moves (interest rate hikes in both countries and, in the case of Argentina, a decision to seek a ...

One major policy issue in Brazil is how to boost productivity, while following a path of fiscal consolidation that will take at least a decade to bring the public-debt-to-GDP ratio back to 2000 levels (Canuto, 2016a). The productivityboosting agenda includes not only the implementation of a full range of structural reforms, but also recovering and upgrading the national infrastructure and other long-term investments. Given that fiscal consolidation has already been leading to less t ...

Central banks of large advanced and many emerging market economies have recently gone through a period of extraordinary expansion of balance sheets and are all now possibly facing a transition to less abnormal times. However, the fact that one group is comprised by global reserve issuers and the other by bystanders receiving impacts of the former’s policies carries substantively different implications. Furthermore, using Brazil and the U.S. as examples, we also illustrate how the re ...