Dilma needs more than good will
Dilma needs more than good will
Patricia Campos Mello

-Analysis-

SÃO PAULO - Under Dilma Rousseff's government, Brazil is now slated to grow at a slower rate than previously forecast. What has happened? Simply put: the current economic model has stopped working, says Samuel Pessôa, researcher at the Brazilian Institute of Economics at the prestigious FGV university.

His widely debated article, (which predates the latest annual growth projections) published in Interesse Nacional magazine, asks whether slow growth — less than 1% in the first semester, comparing to the same period in 2011 — is cyclical or structural.

Under ex-president Lula, a member of Dilma’s party, Brazil bet on reducing unemployment and raising capacity thanks to two factors that are not going to recur, Pêssoa says.

He says that, from 2005 until today, credit capacity and the rising wages across social classes fed consumption, thus fueling overall economic growth. Summing the rate of growth and rate of investment — absorption rate — outpaced population grown.

This model has hit its limit because it pushes up wages too high, destroys competition, and generates an anti-industrialization dynamic in society. “Dilma is an ideologist, she thinks industry is a special sector and won’t let it keep going down.”

Bráulio Borges, head economist of LCA Consultores, disagrees. "Those who believe in it say that expansion of consumption wasn’t followed by investments. But government data show that this was not the case: investments were a bit more than 16% of the GDP from 2000 to 2007. Now it’s above an average of 19% from 2008 to 2011.

According to Alexandre Schwartsman, professor at Insper and ex-director of Banco Central (Central Bank), this model was effective while commodities prices were rising —in 2011, they reached a historic peak. “Global deceleration won’t let us keep the same rate”, he says. “This model is not necessarily finished, but now we will grow much less than 3%, instead of last year’s 4.5%."

Armínio Fraga, ex-president of Central Bank and founder of Gávea Investiments, agrees with Pessôa's theory.

Supply must fulfill demand

"It is natural and desirable that consumption grows, and that part of it takes place through credit," he says. "However, rising demand should be followed by rising supply, which hasn’t been enough to keep up with past performances,” he says.

According to the Central Bank, family debt in Brazil represents 43.4% of household earnings.

Pessôa says that Dilma’s places too much value in the effectiveness of interest-rate reductions. Lowering costs of public debts will ultimately have little impact.

The public sector pays about 5% of GDP in interest. Discounting currency adjustments and taxes over interest, the earnings would not cross 1.5% of GDP. "This is not irrelevant, but it isn’t going to save us.".

Pessôa says measures to stimulate the economy taken in recent years are reducing the fundamental efficiency and productivity of the nation. Schwartsman affirms this is the same action taken after 2008’s crisis—but this time it isn’t working. "In 2008, it worked because we were leaving behind higher unemployment rates."

Luiz Fernando de Paula, president of Brazilian Keynesian Association and professor at State University of Rio de Janeiro (UERJ) disagrees. "Considering the current panorama, with the strong tendency to reduce industrialization, this is better than nothing. We need to change high interest rates and currency appreciation, combined with smart industry policies that stimulate high-value exports."

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Society

Face In The Mirror: Dutch Hairdressers Trained To Recognize Domestic Violence

Early detection and accessible help are essential in the fight against domestic violence. Hairdressers in the Dutch province of North Brabant are now being trained to identify when their customers are facing abuse at home.

Hair Salon Rob Peetoom in Rotterdam

Daphne van Paassen

TILBURG — The three hairdressers in the bare training room of the hairdressing company John Beerens Hair Studio are absolutely sure: they have never seen signs of domestic violence among their customers in this city in the Netherlands. "Or is that naïve?"

When, a moment later, statistics appear on the screen — one in 20 adults deals with domestic violence, as well as one or two children per class — they realize: this happens so often, they must have victims in their chairs.

All three have been in the business for years and have a loyal clientele. Sometimes they have customers crying in the chair because of a divorce. According to Irma Geraerts, 45, who has her own salon in Reusel, a village in the North Brabant region, they're part-time psychologists. "A therapist whose hair I cut explained to me that we have an advantage because we touch people. We are literally close. The fact that we stand behind people and make eye contact via the mirror also helps."

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