”Austerity budgets are anti-growth and anti-jobs”
Even as at 1998 it was still under the IMF hammer. And as at 2000 it was still suffering from hyperinflation and hyper-interest rates. It’s synonymous with corruption, economic mismanagement, poverty, and inequality even in 2002. Even though its high unemployment and high crime rate never qualified it as a failed state, its chaotic economic and social state qualified it as a ”Far West” state. That was the nation Luiz Inacio Lula da Silva in 2003 inherited from Fernando Henrique Cardoso.
But given his absolute determination to take his beloved Brazil through a mountain-moving radical economic transformation, this unassuming, easy-going, but steel-willed, larger-than-life Lula, wasted no time his depressed Brazil into one of world’s best performing economies. By growing Brazil’s GDP at 7.5 per cent and adding over 2.5 million jobs yearly, Lula showed the world how rapid economic expansion could be reconciled with democracy and patriotic leadership.
Little wonder by the time he was leaving office in 2010 as Brazil’s President, what Lula left behind was a $2,215 trillion GDP, an economy beating Britain as the world’s sixth largest. In other words, Lula handed his successor, Dilma Rouseff in 2011, a highly leapfrogged industrial economic powerhouse, which besides leading in submarines, aircrafts, and satellite launchers, has now its global corporations like Petrobras, ranked 4th in the world with assets exceeding $300 billion. In other words, he handed her an economy which beside leading in biofuel technology, is also a leader in hydroelectric power with about 90 per cent of its power generated from hydroelectricity, with its Itaipu Dam’s 19,900 megawatts the world’s largest.
Another example of the relevance of a capable state Lula handed his Brazil is its public development bank (BNDES), which with a bigger budget than the World Bank’s, plays a crucial role in preventing dramatic reduction in social infrastructure investment. President Dilma Rouseff following his stellar achieved too not only vowed to end absolute poverty in Brazil by 2014 but is also drastically investing in turning Brazil education system into world-class. And all these, it is understandable why the world has reward Brazil with the hosting the World Cup in 2014 and the Olympic Games in 2016.
The question everyone seems to be asking endlessly is: But how could Brazil have risen so fast to not only beating Britain as the world’s sixth largest economy but also about beating France as the world’s fifth largest economy before the end of 2012? In other words, everyone seems not to believe it that President Lula could between 2003 and 2010 not only pull Brazil out of its difficult economic malaise, but also grow it with such a speed. But more puzzling is how he did it smoothly and inclusively.
The answer simply lies in a combination of two factors: Freeing public resources trapped in big government and channeling them, alongside foreign borrowings, into modernizing and expanding Brazil’s crumbling infrastructure. But to do that, Lula did the unthinkable. First, attacking corruption head-on and instilling efficiency into government, became a successfully staged coup against government’s parasitic employees. Second, having succeeded in putting in place a stable and benign macro-environment, soon Brazil became where global multinationals scrambled to take full advantage of Brazil’s world-class infrastructure, business friendly government. And with such unprecedented FDI inflows — averaging $30 billion yearly — came two important benefits. One, they provided Brazil a more stable means of financing its fiscal deficits. Two, they brought along with their money an unprecedented surge in productivity, in new technologies, and in organizational techniques.
Ensuring that the inflows were sustained, and that the consolidation of an inward-looking industrial Brazil is not hampered, besides comprehensively overhauling and modernizing Brazil’s tax regime, high tariff walls as high as 50 per cent were imposed on imports particularly high-tech consumables like iPod. And through carefully constructed mix of protective measures, using bans to discourage imports and using export rebates to encourage exports, this master economic transformer, created an immense windows of opportunity for local entrepreneurs, small businesses and investors.
Why use of Brazil to argue against our 2013 austerity budget? The obvious reason is that until recently Brazil and Nigeria had a lot in common. They’re regional powers in terms of population and natural resource endowments. Also until recently, both were synonymous with corruption and public mismanagement. So, there no better country in this column should have used to analyze how we should join the world’s exclusive industrial club. In other words, should Nigeria be hold enough to carefully construct its economic development, learning from Brazil, no doubt, Nigeria’s quest for becoming one of the 20 largest economies in the world by 2020 is still not too late. Therefore, rather than taking it personal, those in government being criticized here should come to terms that this column is only trying to contribute to the debate of how to move our Nigeria forward.
In this effort, like I did in last week’s, whether America will soon begin exporting oil or not shouldn’t be why we should peg our oil at $75 per barrel. First, even if the US exports, certainly, America should still import oil from Nigeria for the very reason that Nigeria’s light, sweet, low-sulfur, easy to refine, and environmentally friendly — which America doesn’t produce — remains what the US carbon emission laws recommends for most US cities. Second, even if for any other unknown reasons, which are very unlikely given how controlling Nigeria’s oil at source is strategic to the US global petrodollar hegemony, China and India will be rushing in to quickly fill the demand gap created by America, especially, given how China’s and India’s booming economies are driving their 2.5 billion consumers to be growing global oil consumption by 0.8 million daily.
But should this so much insistence on $75 per barrel simply not be to have more money go into our Excess Crude Account, which could easily be used in growing our Sovereign Wealth Fund? If growing our SWF is all that is driving the pegging, should that have been wisest policy we need to make our economy look like that Brazil? Who disagrees that saving at the expense of investing doesn’t grow any economy especially when prolonged? That’s not what the Brazilian experience teaches us. Lula Brazil shows us that investing most of our revenues in infrastructure is the wisest way to deal with our current infrastructure deficits head-on. In other words, rather than investing in our infrastructure being a waste, it should be the missing magic wand needed to sky-rocket our economic growth.
Of course, a responsible government needs to be fiscally responsible, including not borrowing more than it invests, and also making sure that whenever it borrows the interest rate on public debt never exceeds the GDP growth rate so that debt servicing shouldn’t be burden that requires more borrowing. Surely, government should be fiscally responsible to the extent of being able to respond to external deficits where these are a symptom of an underlying economic malaise. At the same time, denying itself foreign liabilities is unnecessary and counter-productive because on the long-run it blocks economic growth.
That is why our 2013 fiscal austerity that holds back growth, while leaving our bloated recurrent almost untouched, is not how to expect our economy to grow, create jobs for millions of our citizens, and help millions of citizens out of dehumanizing poverty. Rather than preoccupying ourselves with savings that address current account deficits, we budget preoccupations should be how to grow today’s investments to increase future earnings. For this reason
, let us agree, therefore, that borrowing today to invest in our future, besides bequeathing debt to the next generations, we should also be bequeathing them assets such as better infrastructure and superior economic as well as a more stable and cohesive society.
That previous governments failed to allocate our scarce resources wisely to meet our national priorities, wouldn’t be the reason to continue the same path of not seeking best value for our public money. Stimulating our economy from the top down by growing the size and scope of the federal, state, and local governments, was not how Brazil was able to increase its GDP multiplier and trickle-down effects. So, addressing our bloated recurrent frontally, we too need the same unheard-of steps taken by Brazil. And there’s no better time to start this belated reduction of big government than in our 2013 budget. For this reason, our 2013 budget should clearly outline how to go about it, including carrying out a full-scale forensic personnel auditing in all government ministries, departments and agencies. The budget should have set aside some money for conducting such computerized bio-data system, which using biometrics captures and documents government employees as well as flushes out ghost workers from MDA’s payrolls.
Because most of our bloated MDAs are bloated because top government officials bloated them with their relatives, undoubtedly it’s going to be a daunting task. Daunting because it’s going to be the same top government officials who bloated these MDAs with their friends and family members we should expect permit the carrying out this forensic personnel auditing exercise. This is like asking a judge to convict himself.
But even if starting with the reduction of our bloated MDAs is going to be a difficult battle, at least, shouldn’t we start with cutting down the current excesses and abuses at all levels of government? If Brazil, once synonymous with public mismanagement and corruption, could come out clean, why shouldn’t we too do so? Shouldn’t joining the rest of the world in the 21st smart and efficient government mandate us to drastically reduce our ongoing shameful government entourages?
Shouldn’t this be the right time to ask ourselves what really happened to the Obasanjo Monetization Policy, a policy carefully designed to force government employees live within their means? If the monetization policy was meant to radically reduce government’s high recurrent expenditure by cutting down these excesses, is it time we brought back the policy that could have monetized government employees’ residential accommodation, furniture, allowance, utility allowance, domestic servant allowance motor vehicle loan, fuelling/maintenance and transport allowance, as well as medical allowance leave grant, leave subsidy, and entertainment allowance? Isn’t time we brought this policy that should have drastically driven down government recurrent bills, with such macroeconomic effects as efficient resources allocation, unemployment and inflation reductions in 2013? If we’re serious, I have every hope that his government is, why shouldn’t starting giving our recurrent expenditure the right haircut begin with the full implementation of monetization in 2013?