Brazil’s economic experience

Brazil’s economic experience is one of the most successful modern economic stories, making it currently the seventh richest country in the world. Its political power and international influence are at the highest levels, and despite current crises, it’s unlikely to regress to even 10% of its former state.

This experience could be the closest to Egypt’s situation and could be the key to overcoming its current economic challenges. Brazil’s path during its ruling periods was similar to Egypt’s, only lacking a civilian state period.

From 1930 to 1975, Brazil suffered under absolute military rule, supported by a layer of businessmen, with the people treated like dirt. This led to protests and revolutions, which were met with accusations of treason, arrests, and torture by the authorities. Consequently, the Brazilian people turned into one of the world’s most criminal populations, with crime and murder rates among the highest globally. The military’s oppression of the disadvantaged generation led to their children rejecting all notions of peace and state sovereignty, resulting in a civil war that devastated the remnants of the military, businessmen, and peaceful citizens alike.

The state was ruined, with no money left, and resorted to begging. The military, along with the people, begged during the period of civilian generals from 1975 to 1985. Even the World Bank refused to lend to them after the public debt increased by 900%. Civilian democratic rulers tried to revive the state from 1985 to 2003, but all attempts failed due to extreme poverty and the devalued currency.

A knowledgeable president, Luiz Inácio Lula da Silva, came into power. Born poor and raised in a highly criminal society, he witnessed the injustice of imprisonment, military brutality, and citizens dying of hunger.

When Lula da Silva took office, everyone was afraid. Businessmen thought he would favor the poor, his own people, while the poor believed he would enrich himself at the expense of the people along with the businessmen. However, he did neither. Instead, he took the following magical steps:

First, he reassured all social classes, approached the poor, and was lenient with the rich, considering the state as an integrated system. If businessmen fell, they would drag millions of citizens employed in their companies, factories, and farms down with them. Second, he implemented austerity measures across all state services and expenses. Austerity means the state foregoes many of its essential needs and support for its services, saving money for the future.

Austerity is a double-edged sword; it financially elevates the state in the long run but burdens the disadvantaged citizen in the short term by lifting subsidies on goods and services. Lula da Silva solved this by introducing a budget item called “direct social aid,” amounting to 0.5% of the national income, paid as financial salaries to poor families. Instead of subsidizing goods and raising prices, he removed subsidies but gave money to the poor on the condition that they commit to educating their children and maintaining their health. The program benefited 11 million families, equivalent to 64 million people or 33% of the Brazilian population.

The average support received by a family was $735 monthly, which would be about 7000 Egyptian pounds at the current market rate. One might wonder where the money came from since the state itself was begging. The solution was in the fifth step: raising taxes on everyone except those supported by the aid program. Thus, businessmen, the wealthy, and the upper-middle class paid the taxes, and they did so happily because Lula da Silva had already facilitated their investment processes and business operations.

In the fifth step, he implemented a new lending policy, reducing the interest margin on loans for state projects to 8.75%, down from rates that would undoubtedly lead to loss and bankruptcy. This policy was inspired by Japan’s approach in the 1970s. The results were impressive: 2 million Brazilian migrants returned home, 1.5 million foreigners invested and settled in Brazil, and Brazil gained $200 billion in direct investments in 2011. Various projects were initiated by the state, investors, returnees, and locals. These projects transformed Brazil from a country the IMF refused to lend to in late 2002 to a creditor of the IMF, owing Brazil $14 billion after five years of Lula da Silva’s program.

In the early years of Lula da Silva’s rule, he granted significant permissions and removed major obstacles for the agricultural sector and raw material extraction. Everyone began farming and extracting raw materials like oil and minerals, selling only to the state, which exported these raw materials without industrial processing. Still, the state managed to balance the payments deficit by exporting only raw materials.

Then, the state steadily entered the industrial sector, starting with primary products from raw materials, then food and consumer industries, and finally advanced industries like automobiles and airplanes. The Brazilian company Embraer represents 37% of the regional airline fleet in the United States.

To address currency inflation, they introduced an interim banking currency called the “Real Value Unit (URV)” to transition from the current currency to a new one, the “Brazilian Real.” As the economy improved, the transitional currency’s value increased until one new real equaled 2750 cruzeiros.

Next, they focused on the tourism sector, capitalizing on their international fame for football and the samba dance. They introduced a new tourism concept, “festival tourism,” where large groups of samba dance troupes perform, and the public participates, attracting tourists to watch. Brazil’s stunning natural beauty also contributed to attracting 5 million tourists annually.

Finally, Brazil became an economic power to be reckoned with. It formed the Mercosur organization with other South American countries like Argentina, Paraguay, Uruguay, and associate members Venezuela and Bolivia, becoming the fourth largest economic alliance globally. Then, it created the BRICS group with Russia, China, India, and South Africa. The combined national product of the BRICS group equals that of the United States. Due to the stability of the Brazilian economy and its independence from the US dollar, Brazil was one of the least negatively affected countries by the 2008 global crisis, even achieving 5.1% growth. Brazil also lent to the World Bank during this period, as did Saudi Arabia and other raw material-exporting countries. Following this, Lula da Silva sought international support for a permanent seat on the UN Security Council, considering Brazil an economic and political global power.