|
Two Years of Change |
|
Two Years of Change |
I - The Economy
1. Inflation
Stabilization
Income Redistribution
Our report on the two years of this government begins by considering the most crucial issue in Brazil's economic transformation: the fight against inflation.
1. Inflation
Brazil is enjoying its lowest level of inflation since the 1950s. Inflation is in the range of 10%; in 1995, it was about 20%. More then thirty months after the implementation of the Real Plan, the inflation rate is still declining. The annual rate in 1996 was, just a little more than two years ago, the rate for only one week. These data reflect the consolidation of the Real Plan. After thirty months, memory of the past inflation is beginning to crumble. Behind this anti-inflation effort, a change of mentality has taken place: indexation, a mechanism that automatically extended inflation, is disappearing.
Inflationary data indicate that the Brazilian economy is passing through a period of relative price accommodation in which price fluctuations are converging toward a lower plane. Thanks to the opening of the economy, the cost of tradable goods has fallen because the international prices became the reference prices.
During 1996, the prices of non-tradables also stopped moving upward, notably for services and rents. The cost of rents, medical services and school tuitions are not only falling, but are also converging toward a lower level. The following graph shows that the cost of services, which in 1995 contributed the most to the inflation rate, is now steadily declining.
The Real Plan did more than bring inflation under control. It caused also a redistribution of income with significant benefits for Brazil's lowest income sectors. Brazil is now experiencing a period characterized by stable currency, income redistribution and economic growth.
The lowest income population benefited most from the monetary stabilization that the Real Plan produced. An excellent indicator during this period was the price increase for the mix or basket of basic foods (cesta básica) consumed by the lowest income sectors — zero. This mix of foods currently costs the same as it did in July 1994 (R$106.95). The poor obviously have benefited tremendously from this price stability.
In addition to stabilizing the prices of the basic food items, the Real Plan was responsible for the increased consumption of foodstuffs, and especially of items high in protein. The expanded consumption of chicken demonstrates the greater ability of lower income sectors to buy foods that are rich in protein. The substantial growth in yogurt sales also reflects a rise in eating standards. The average Brazilian is eating more and better.
The sales of durable goods rose as well during the two years of this government. The sales of refrigerators, freezers, televisions, sound systems and small appliances grew substantially. The data from the National Survey of Sample Households (Pesquisa Nacional por Amostragem de Domicílio — PNAD) for 1995 indicate that, since the implementation of the Real Plan, Brazilian households are increasingly better equipped with appliances. These data show that the economic improvement has been not only in the consumption of basic foodstuffs, but also in durable goods. These facts show the profound change taking place in the population's lives.
The sales of low-priced automobiles also demonstrated the effective redistribution of income during the past two years. Purchases of such vehicles grew 33% in 1995 and 57% in 1996. These numbers mean that the sales of cars to the lower income sectors rose faster than did the total production of autos.
The sharp jump in automobile purchases has sparked a major expansion of production since 1994. Thanks to the new contingent of buyers entering the market, by the turn of the century Brazil could become the world's fourth largest market and the fifth largest producer of automobiles.
The redistribution of income was, therefore, the most eloquent social effect of monetary stabilization. The number of poor people fell noticeably. Research by IBGE and IPEA reveals that thirteen million Brazilians rose out of poverty between 1993 and 1995 (in 1993 there were 43.3 million people below the poverty line; in 1995 there were 30.4 million). Moreover, after the introduction of the Real Plan, a significant increase occurred in the average income of people living below the poverty line. Thus, the Real Plan not only brought inflation under control, it also avoided having the poorest sectors of society pay the economic cost of this anti-inflation program.
Another way to measure the positive affect of the Real Plan is to look at the movement of people among Brazil's social classes. The number of people in the poorest classes (known as "D" and "E") declined 17% while the number in the richer classes ("A" and "B") rose 21%. These numbers show that the country is undergoing a shift in its social structure. Millions of Brazilians are moving up to join the middle class. This movement is terribly significant because it means that stratified social structures are being modified, something that is difficult to do in any society.
The average monthly income of the poorest 10% of the population doubled between 1993 and 1995. This increase signifies that not only did the number of poor people decline, but also that those who continued below the poverty line were not as poor as they had been.
I - The Economy |
