Brazil’s New Beat: Social Challenges, Economic Progress
As Brazil struggles to overcome persistent problems of poverty, corruption and an economy that sometimes seems under siege, this country of 186 million people still manages to command respect and attention, not only from Latin America — where its sheer size ensures its dominance — but from many countries in the developed world as well. In our special section on Brazil, we look at the mixed success of free-market reforms in Brazil, the challenges facing the government of President Luiz Inacio Lula da Silva, Brazil’s role in the global trade negotiations taking place this week in Hong Kong, and the debate over intellectual property rights in the medical, music and software industries. We also report on Brazil’s surprisingly strong auto sector, and the uneasy alliance between generic drug manufacturers and big pharmaceuticals in a country where some consider societal needs to be as important as profitability.
These stories are also available in Portuguese and Spanish on Universia-Knowledge at Wharton.
Many Latin American countries, after trying to beat back rampant inflation and ignite economic prosperity through the adoption of free-market principles promoted by Washington in the 1990s, have grown unhappy with the results. So are these nations returning to the populist, leftist policies of the past? Or are leaders in the region still largely committed to democracy and market reforms, despite their disillusionment with the rate of change? Experts differ on the answer to this question, but agree on one thing: Brazil, Mexico and Chile are less inclined to revert to populist strategies, at least for now, than some of their neighbors.
Last March, the Brazilian government publicly threatened to break the patents on four anti-retroviral medications if the global companies that made those drugs did not agree to allow Brazil to produce generic equivalents or buy those patented drugs at discounted prices. Pharmaceuticals, however, are not the only sector in which the U.S. and Brazil have lately been clashing swords over intellectual property (IP) issues. Last April, the U.S. government gave Brazil an ultimatum to crack down on widespread piracy of compact discs, videos, software and other IP-protected products or lose its trading status as a most-favored nation. Yet despite the Brazilian government’s hard-line stance on IP, some experts suggest that the country has recently made significant progress in the area of IP reform. The goal — as shown by the launch of a new anti-inflammatory drug called Achéflan — is to better promote technology innovation in the marketplace.
Corruption scandals involving Brazilian President President Luiz Inacio Lula da Silva and his government show no signs of letting up, and they are beginning to have an impact on Lula’s popularity. In October, his approval rating fell to 46.7% from 50% the previous month — the lowest since he came to power three years ago. The government, however, is in a worse position: Only 31.1% of all Brazilians expressed confidence in its leadership, compared with 36% in September. Also fueling public discontent is the economy. GDP slowed in the first quarter, and annual GDP growth is expected to drop. Meanwhile, interest rates remain stubbornly high. The question on everyone’s mind is: Will Lula be able to recover his lost credibility in time to win reelection 10 months from now?
The Brazilian auto industry will finish the current year with record high production volume of 2,450,000 vehicles, an 11% increase over 2004, according to ANFAVEA, the national association of automobile manufacturers. Success is largely due to a 29% increase in exports — historic numbers that contrast with growth in domestic sales of barely 5%. Nevertheless, not everything is going well for automakers. Analysts predict that 2006 will be full of challenges due to the rising value of the Brazilian real, which is making it harder to sell in foreign markets. In addition, the domestic market is hobbled by one of the world’s highest interest rates (18.5%). Forecasters do not expect economic growth to be strong enough to generate many new jobs or to raise the population’s ability to purchase big ticket items like cars. In short, while the auto industry has some reasons to celebrate, it is also casting a wary eye on the future.
Since the introduction of generic drugs in Brazil five years ago, the country’s pharmaceutical industry has undergone a transformation. Generic drugs have been steadily gaining market share and today represent 11.6% of total production. Their rise has led to a decline in the influence of major multinational drug companies that sell branded products in the domestic market. Generic drugs, however, are not the only danger confronting these multinationals. In an attempt to negotiate discounted prices, the Brazilian government is threatening to violate the patents on medications used to treat AIDS. That threat alone, say the multinationals, will lead big drug companies to reduce their investments in Brazil’s pharmaceutical sector.
As trade ministers from the world’s leading industrial nations scurried to get ready for crucial meetings in Hong Kong that could decide the fate of the World Trade Organization’s Doha Round, they made sure to establish contact with a handful of the largest, most influential developing countries, including Brazil, China, India, Russia and South Africa. To no one’s surprise, Brazilian President Luiz Inacio Lula da Silva is leading the Latin American trade delegations in their attempts to push the U.S., Europe and other industrialized nations to make deep cuts in their agricultural tariffs and subsidies. The existence of such protective measures makes it hard for developing countries like Brazil, where economic development is more urgent than ever, to sell their agricultural products to rich countries.