Category Archives: Brazil

Inflation Targeting

Inflation targeting is a somewhat new approach to the role of Central Banks. This system was implemented in Brazil when I was a senior in college. I still remember the debate on whether inflation targeting was appropriate to a developing country like Brazil and most analysts predicted it wouldn’t last long. That said, inflation targeting has been used for approximately 20 years in Brazil.

There is a book about inflation targeting written by Pierre-Richard Agénor (University of Manchester) and by Luiz Pereira da Silva (BIS).  This book is titled “Integrated inflation targeting: Another perspective from the developing world”. It provides a wealth of information about recent experiences with inflation targeting in developing countries, including discussions about how it performed in light of the global financial crisis and the issues faced by policymakers. This is a very nice manuscript and I strongly recommend to those interested in learning more about inflation targeting.

 

The infancy of Mercosul (or Mercosur)

There are two very interesting books in pdf format about Mercosur by Paulo Roberto Almeida that can be downloaded for free.

The first book is titled “O Mercosul no Contexto Regional e Internacional ” (Edições Aduaneiras, 1993).  It provides some background information about the foreign affairs in the Southern Cone of South America. And it goes over the fundamentals of the Mercosur. This book was written between the conclusion of the main negotiations of Mercosur and the implementation of the Mercosur. Thus, it provides an interesting perspective on the crucial issues and expected impacts of Mercosur, see for instance chapter 10.

The second book was published in 1998, three years after the the implementation of Mercosur. It is titled “Mercosul: Fundamentos e Perspectivas” (São Paulo: Editora LTr, 1998, 160 p.; ISBN: 85-7322-548-3). This book puts the Mercosur in the context of the century-old idea of Latin American Integration. Also, it goes over the implementation of the Mercosur and the first issues experienced by the member countries. Finally, in chapter 9, the author discusses the relationship between Mercosur and the (now defunct) FTAA-Free Trade Area of the Americas.

I strongly recommend these two books for scholars interested in learning more about the ambitious albeit problematic integration agreement that is the Mercosur (or Mercosul…).

The erratic Brazilian trade policy

The recent elections in South America indicate a major change in course for the Southern Cone countries and also for Bolivia. This change is not uniform across countries, and in some cases can be in opposite directions like the cases of Brazil and Argentina. Interestingly, the Brazilian trade policy experienced large changes over time, in part due to balance of payments constraints. Since the 2000s, Brazil did not pay much attention to Mercosur because of its large trade surpluses from the China-induced commodity boom. Nevertheless, the current government in Brazil sees Mercosur as a stumbling block to trade negotiations with other countries. The fundamental question is what are the goals of the current Brazilian trade policy? A key ingredient of any answer to this question is contained in an interesting article by Paulo Roberto Almeida that revisits the history of the Brazilian trade policy. This is a very nice and succinct paper that I recommend to everybody interested in learning more about Brazilian trade policy.

The past of Mercosur (or Mercosul)

The recent presidential elections in South America have raised concerns about the future of Mercosur, or Mercosul for Portuguese speakers. Although it is too early to make any reasonable prediction, it is interesting to note that Mercosur since its inception has been always more than just a trade agreement. This point has been overlooked by many analysts. And perhaps, this is the reason behind the survival of this agreement. An excellent starting point for those interested in learning more about Mercosur is a paper by Paulo Roberto Almeida titled “Regional Integration in Latin America: Historical Developments, Current Challenges, Especially in Mercosur”. This nice paper examines the evolution of the Southern Cone countries’ foreign policies since the early eighties. It goes over the foundation of the Mercosur in 1991 and the conflicts between member countries that that have taken place after 1999.

Transferring IPEADATA series to Stata

A common issue that arises when converting time series data from IPEADATA to Stata format is dealing appropriately with the time variable. For instance, for monthly series the date format will be YYYY.MM. Stata usually interprets this format as numeric.

Suppose you already downloaded a monthly series from IPEADATA and transferred it to Stata. It is very likely that the date variable (let’s call it date) has been automatically handled as a numeric variable. The first thing to pay attention is that the numeric format disregards zeroes on the right-hand side of the decimal point. This means that October of 1940 is coded as 1940.10 by IPEADATA and interpreted as 1940.1 by Stata. To recover the missing zero, the first step is to convert this variable to string format. This can be done with the string() function.

generate sdate=string(date)

To add back the missing zeroes, we can do the following:

replace sdate=sdate+”0″ if length(sdate)<7

Now, we just need to tell Stata to interpret sdate as a monthly date variable. This can be accomplished with the command numdate. This is not a standard Stata command and needs to be installed in your computer (ssc install numdate).

numdate mo newdate = sdate, pattern(YM)

The above line can be interpreted as create a new date variable named newdate from variable sdate that is in the YYYY.MM format.

The numdate ado file can deal with very flexible date specifications, and its help file is very comprehensive. Two other useful commands are convdate and extrdate. They are used to convert or extract parts of dates from variables that are already in the Stata date format.

A final recommendation is to take a look at Stata documentation on dates that is available at http://www.stata.com/manuals13/ddatetime.pdf.

Social Security Reform in Brazil

Since I was a little kid Social Security reform has been discussed in Brazil. It is fair to say that in the early 1980s a huge actuarial deficit was already in place. Since the financial side was still fine, i.e. Social Security contribution revenues were larger than the paid benefits. Additionally, the hyperinflation of this period facilitated financial adjustments. All that was needed to balance the Social Security budget was to adjust benefits by less than the actual inflation rate.

To make matters worse, several significant changes affected the Brazilian economy since the late 1980s. First, the Brazilian Constitution of 1988 changed several Social Security rules for both private sector and public sector workers. These changes, among other nefarious effects, increased substantially the benefits paid without an increase in the contributions. Moreover, the Brazilian Social Security system is a pay-as-you-go system, which makes it very vulnerable to demographic changes. In fact, the fertility rate started to decline rapidly and at the same time life expectancy in Brazil increased considerably since the 1980s. Finally, the end of hyperinflation after the implementation of the Real Plan in July 1994 prevented the use of inflation by government to curb Social Security deficits. As a result, by the end of the 1990s, Social Security had both actuarial and financial deficits.

Several mild reforms have taken place since the mid-1990s, though none of them were able to restrain the ever increasing financial deficit. A new reform is currently being discussed in the Brazilian Congress. It is not clear, at least to me, whether it will be modified (and how) or even if it will be approved by Congress. In this link you can find some of the fiscal forecasts that were used to support the current proposal to reform Social Security.

 

Reading DATASUS and ANS .dbc files using R

Those interested in conducting research using Brazilian data often come across some unusual file formats used by Brazilian government agencies. One example is the .dbc files used for health data produced by DATASUS and by ANS. These .dbc files are not related to the.dbf files used by FoxPro for instance. In fact, they are just compressed .dbf files.

There is a package in R that can convert these .dbc files into regular .dbf files. This package is named read.dbc. Once you generated the .dbf files, you can use the package foreign and its function read.dbf to import the data into R. This very same package allow you to save the data using Stata .dta format by means of the function write.dta.

The package maptools also has a function to read dbf files named dbf.read, though I have not tried it yet.

 

New book about the Brazilian economy

The International Monetary Fund published a new book about the Brazilian economy. It first provides an overview of the Brazilian economy, and then cover  the following important topics: Economic Growth, Social Progress, Fiscal Framework, Challenges to the Monetary and Financial Framework, and Fighting Corruption. This book can be downloaded for free here.

The third chapter (Current Constraints on Growth) is of interest for those trying to understand some of the reasons for the poor performance of productivity growth in Brazil, which many observers suggest to be the key structural problem of the Brazilian economy.

Roberto Campos and the Brazilian Constitution of 1988

Let me talk again about Roberto Campos and the Brazilian institutions. After a heterodox economic plan was implemented in February of 1986, the entire country was happy and enthusiastic. Later in the year, Brazilians voted for state governor and for a new Congress. Most important, the elected members of this new Congress were also in charge of writing a new Constitution for Brazil. Campos was elected deputado federal (a representative in the Brazilian lower chamber).

As I mentioned in a previous post, he was involved with many of the institutional changes that took place in Brazil between 1964 and 1967, including the creation of the Brazilian Central Bank. Unfortunately, his role in the drafting of the new constitution would be a much smaller one. Although many observers claim that the 1988 Constitution represented a move forward in civil and political rights, the majority of the economists believes that it severely reduced the economic freedom in Brazil by given the Brazilian federal government a central role in the country’s economy.

With a tad of melancholy, Roberto Campos  produced several essays about the changes introduced by the 1988 Constitution that were made available in a book titled “A Constituição Contra o Brasil” (The Constitution against Brazil). This book is a must read for those trying to understand the (good or bad) changes  introduced in the Brazilian economy after 1988. A pdf of the book (in Portuguese) is available here.

Ernesto Lozardo’s new book: Ok, Roberto. Você venceu!

Professor Ernesto Lozardo has taught economics at EAESP-FGV since 1977. I took his Money, Credit, and Banking course when I was a junior at EAESP. To make a long story short, his knowledge and passion about economics and his will to put in practice good economic policies strongly motivated me to pursue a graduate education in economics.

That said, Prof. Lozardo’s new book titled “Ok, Roberto. Você venceu!” (published by Topbooks) is about Roberto Campos. He was one of the most notable Brazilian economists of the last century, not only in terms of designing development policies but also in terms of implementing them. In fact, his policies transformed Brazil from a very poor country in the late 1940s to a middle-income country in the mid 1970s.

I strongly recommend chapters 5, 6, and 7 for those interested in learning more about the institutional reforms conducted by Campos that led to strong economic growth in Brazil in the 1970s. Several of those institutions are still present in Brazil nowadays.