Why Brazil Will Continue To Underperform Economically After Luiz Inácio Lula da Silva's Reelection

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0:34A holiday deal this good obviously deserves an enormously expensive holiday song. Like, all I want. Right. Okay, we can't afford that. You know what? Forget the music budget. We're going to stick with whatever's in the public domain. Give it a try at mintmobile.com slash switch. Upfront payment of$45 for three months,$90 for six months, or$180 for 12-month plan required. $15 per month equivalent. Taxes and fees extra. New customer offer for initial plan term only. Greater than 50 gigabytes may slow when network is busy. See terms. Poor Brazil. By re-electing a socialist president, the country will continue to be plagued with the age-old quip.

1:08Brazil has a great future and always will.

1:16Hello, I'm Steve Forbes and this is What's Ahead, where you get the insights you need to better to navigate these turbulent times. Brazil's 81-year-old leftist scandal-plague president, Luis Inácio Lula da Silva, a man universally known as Lula, won an upset reelection victory on Sunday.

1:36Steve Forbes: Unleashing Brazil's immense potential to become a global economic superpower will have to wait another day, yet again. Despite enormous natural resources and a large energetic population, Brazil has been a chronic underachiever. The country has long been held back by excessive taxes, chronic bouts of extreme inflation, and a massively intrusive government that mostly smothers the entrepreneurial creativity that is necessary for economic greatness. When a government holds so much power over an economy, corruption is rampant and Brazil has been no exception. One ugly byproduct of endemic inflation is high rates of crime.

2:22Steve Forbes: Brazil has long been one of the most violent countries in the world. Now, to be fair, the government's top-down approach to guiding the economy did have some success in stimulating agriculture by reducing certain taxes, extending cheap credit to farmers in selected parts of the country, and most importantly in funding research. Brazil is an agricultural giant. In 2024, it overtook the U.S. to become the world's largest exporter of agricultural commodities. In addition to commodities, Brazil has a few islands of excellence. Embraer, for instance, is the world's third largest commercial jet maker.

3:05Steve Forbes: Financially, the country's central bank is brimming with reserves. The banking sector is well capitalized. The value of Brazil's currency, the real, has performed fairly well in recent years, but there have been previous periods of stability followed by collapse. Violent crime has receded somewhat, but Brazil's overall performance remains subpar. Growth currently hovers around 2%, a pitiful result for a country that could rapidly achieve the kind of high growth rates that once marked China and decades before that Japan, not to mention India in this century. For starters, corporate and social security tax rates are too high.

3:49Steve Forbes: Government is bloated. As a percent of the economy, it has gone from around 34 % in 2000 to over 45 % today. Government debt is proportionately one of the world's highest, a burden made heavier by ultra-high interest rates. The benchmark central bank rate is a staggering 13.75%. Such onerous levels are growth killers, especially for small businesses. Brazil still is one of the most closed large economies in the world. Starting a legal business is no easy task. Licensing and obtaining permits are slow. There are all sorts of local content rules. Despite changes, labor laws are highly restrictive.

4:36Steve Forbes: Having to pay employees 13 months of wages for 12 months of work is just one example. No wonder it is estimated that 37 % of Brazil's labor force works in the informal economy. The prescriptions to make Brazil finally great are clear. stable money, low tax rates, a significantly less domineering government, and a more trustworthy legal system. But sadly for investors, no such reformation is in the offing with a socialist leader who triumphed the ballot box by promising more handouts. I'm Steve Forbes. Thanks for listening. Do send in your comments and suggestions and look forward to being with you soon again.

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