Americas Quarterly - Spring 2011

events will benefit diverse sectors of the economy, through spending on ports and airports, urban transportation, sports facilities, hotels, telecommunications, energy, and security. Tourism is likely to benefit during the games, and also afterward.

Nevertheless, with public and private domestic savings at their current low levels, Brazil will need to continue tapping external savings to finance growth. That means a larger current-account deficit and an exchange rate appreciated by capital inflows.

Brazil will have to make the most of its available resources. It will be essential to create an environment that is conducive to private sector saving and investment. Ensuring stable macroeconomic conditions is critical. Remaining market-friendly in a well-regulated environment is also crucial for healthy and abundant financing.

A well-established institutional design for regulatory agencies, which instills the necessary confidence that the private sector can undertake major, long-term projects, is

A great deal can be achieved through small but focused changes, instead of ambitious but often unrealistic regulatory agendas. The advance in credit regulation in Brazil is one such example. Developing a deeper market for private, fixed-income securities is important, but there needs to be a liquid secondary market, so that families have more confidence in extending the maturities on their investments. Just as we have such a market for equities, we can have one for fixed-income securities.

Meeting infrastructure needs is among our society’s priorities. The country has changed since the era of high inflation and economic stagnation. Infrastructure problems existed back then, but there were other more urgent needs. Now that Brazil’s economic horizons have widened and growth has accelerated, it is natural that the new administration turns its attention to the structural problems.

Sustainable growth requires advances in education. Brazil needs

BRAZIL

THE HEMISPHERE RISES

to emphasize the accumulation of knowledge by educating its children to be productive, to solve problems, and to serve as leaders. The country has already come a long way, particularly regarding access to elementary and high schools. Virtually all children attend elementary school. More than 80 percent study at the middle and high school levels. Notwithstanding advances in access, the quality of education remains insufficient. Brazil tends to perform poorly in proficiency tests at all levels, in absolute and relative terms, compared with the rest of the world.

Improvements in education can take Brazil’s economic growth to a higher level. For proof, just look at the personal, individual returns on investment in education. People with more education earn higher incomes throughout their careers.

But more education spending is not enough. It is necessary to plan and put in place the kind of incentives that will encourage teachers and schools to help students attain higher levels of performance. Our bank, Itaú, is actively involved in improving the quality of Brazilian education, working with schools in their daily activities and teaching methods all the way up to helping with the formulation of government policy in education.

If the new government can sustain the policy gains of the past, while addressing regulatory and social issues—especially education—Brazil can meet many of the hardest challenges it faces in the years ahead. Regulatory issues can be handled incrementally, but social issues represent a long-term, multi-faceted problem. That is not meant to sound discouraging. Brazil, with its strong political class and actively engaged private sector, is in a more privileged position than many other countries to seize the opportunities ahead. But it will require political will and commitment from the country’s new leaders.