SOCIAL REVOLUTIONS, THEIR TRIGGERS FACTORS AND CURRENT BRAZIL
A failure of the federal government to control inflation and reduction of brazil cost
1. A FAILURE OF THE FEDERAL GOVERNMENT TO CONTROL INFLATION
AND REDUCTION OF “BRAZIL COST”
Fernando Alcoforado *
The recent decision by the Brazilian federal government to reduce electricity tariffs and
adopted several years ago to contain prices of petroleum products represent attempts to
avoid the escalation of inflation in Brazil. Currently, Brazil is the country with the
highest inflation rate in the world. Official inflation, measured by the Consumer Price
Index (IPCA), closed 2011 with a cumulative rate of 6.5%, the highest result since
2004, when the index rose 7.6%. The index also outperformed the result of 2010 when
the rate was 5.91%, and reached the target ceiling stipulated by the Central Bank (BC)
for 2011, of 4.5%, with a margin of 2 percentage points down or upward. While the
economy has a meager growth, inflation remains at a fairly high level of prices
threatening the stability of the Brazilian economy that has existed since the
implementation of the Real Plan.
The reduction in electricity rates was a positive decision because the fall of 28% for the
industry will help to reduce the cost of production of the industrial sector, may thus lead
to an increase in industrial production and a lower cost of final products, consequently
raising the competitive power of the industry in Brazil threatened by deindustrialization.
A study released by the Federação das Indústrias do Estado do Rio de Janeiro
(Federation of Industries of the State of Rio de Janeiro - Firjan) shows that the average
tariff for the electricity industry in Brazil, of R$ 329 per megawatt-hour (MWh), is
about 50% greater than the tariff international average of R$ 215.50 / MWh. The study
of Firjan considers data from 27 countries, available in the International Energy
Agency. Regarding Russia, India and China, emerging countries with South Africa that
are part of the so-called BRIC group pay, on average, R$ 140.70 / MWh for the energy
industry, the fare difference exceeds 130%.
The cost of generation, transmission and distribution of electricity in Brazil is more
expensive than the cost of final energy of the three main international partners of the
Country, which are Argentina, the United States and China. As is R$ 165/MWh in
Brazil, China, the cost reaches R$ 142.4 / MWh in the United States, R$ 124.7 / MWh,
and in Argentina, R$ 88.1 / MWh. However, the Brazilian industry to become
competitive not just reduces electricity rates. The government's decision to reduce
electricity tariffs should have been taken long ago. Besides electricity, the Firjan critics
also the 14 charges on energy, which account for 17% of final tariff. Highlights that the
average rate of state and federal taxes - PIS / COFINS and ICMS - charged in the
electric power industry is 31.5%, the highest of all countries analyzed in the study.
This decision to reduce electricity rates was positive, too, because the electricity was
being sold in Brazil embedding in price, wrongly, amortization of an investment that
had already been paid for decades by the Brazilian people and was being charged that
should not happen. The federal government and ANEEL should have taken the decision
to reduce electricity rates for longer. In practice, the electric utilities were stealing with
the connivance of the federal government, all electricity consumers in the Country.
However, the reduction of electricity tariffs was a wrong decision at this time because
stimulate the consumption of processed products with the cheapening of their costs, and
will increase the electricity consumption of households and industries with falling
industrial tariffs (28%) and residential (16%).
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2. This is a huge contradiction because encourage consumption at a time of escalating
inflation and shortage of hydroelectric generation as a result of drought that threatens
the Country with electricity rationing. Another gigantic contradiction lies in the fact that
reduce the electricity tariff that increase your consumption and at the same time, raise
the costs of operating the electric system with the use of thermal power plants, all of
them operating at full capacity. The reduction in electricity tariffs could start to climb
curb inflation, but the trend is there a resumption of inflation due to the stimulation of
consumption that falling tariff levels provide. To control inflation, the federal
government also has used for years to restrict Petrobras rising prices of petroleum
products (gasoline, diesel, etc.). However, the high price of oil abroad is breaking
Petrobras to pay for expensive fuels imports and sells below its real value in Brazil.
The federal government's recent decision to raise prices of petroleum products after
several years of restraint is not sufficient to eliminate the huge problems faced by
Petrobras at the moment. Petrobras is paying a high price because the government
cannot control the inflation that makes this company is poorly positioned in the market
as evidenced by the results from the loss in value of its shares on the Stock Exchange.
Petrobras has lost 40% of its market value in three years and went from second to fourth
in the ranking of the largest oil and gas companies in the United States and Latin
America being overtaken first by Ecopetrol, a Colombian company. Petrobras that
loomed among the largest global oil loses today for a company operating a much
smaller amount of oil. Besides the threat that inflation get out of control at the time,
Brazil has faced for many years with the so-called “Brazil Cost” which is a term widely
used in the press to characterize the inefficiency and ineffectiveness of State
management in Brazil.
The “Brazil Cost” fundamentally results of: 1) the endemic corruption in Brazilian
public sector, 2) the high public deficit (R$ 2 trillion), 3) the high real interest rates, 4)
the large "spread" banking, 5) the highest tax burden, 6) the high labor costs, 7) the high
costs of the pension system; 8) the tax law complex and inefficient, 9) the high cost of
electricity, 10) the poor infrastructure (saturation of ports, airports, roads and railways),
and 11) the lack of skilled labor. It can be seen from the above that, not just the
reduction of electricity tariffs to reduce the cost of Brazilian industry and increase the
power Brazil competitiveness. The federal government needs to adopt an industrial
policy that contributes to effectiveness for permanent reduction of production costs in
the industry in Brazil compared to Asian countries, especially China, which can only
occur in four ways: (1) reducing the “Brazil Cost” decreasing the tax burden and
improving logistics infrastructure in Brazil, (2) increasing industry productivity with
higher levels of efficiency and effectiveness and strengthening their supply chains, (3)
depreciation of the real-intake restriction dollars or the adoption of a fixed exchange
rate, and (4) selective and permanent relief industry by reducing the its tax burden.
These solutions should be complemented by the adoption of measures aimed at: 1) to
overcome the huge problems of education in Brazil at all levels to eliminate deficits and
low qualification of human resources, 2) the development of knowledge resources for
adopting programs establishment of centers of R & D, technology acquisition and
attracting brains from abroad, 3) the appropriate allocation of infrastructure resources by
establishing effective programs to eliminate bottlenecks, 4) encouraging the connections
between the supply chains of companies and their suppliers by eliminating loopholes
and, 5) combating predatory competition of imported products with the restriction or
limitation of its entry into the domestic market. Without the adoption of these measures,
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3. the crash may occur from large industrial sectors, the denationalization of Brazilian
industry and its transfer to other countries where conditions are favorable to them,
especially to China which has become the "workshop of the world".
* Alcoforado, Fernando, engineer and doctor of Territorial Planning and Regional Development from the
University of Barcelona, a university professor and consultant in strategic planning, business planning,
regional planning and planning of energy systems, is the author of Globalização (Editora Nobel, São
Paulo, 1997), De Collor a FHC- O Brasil e a Nova (Des)ordem Mundial (Editora Nobel, São Paulo,
1998), Um Projeto para o Brasil (Editora Nobel, São Paulo, 2000), Os condicionantes do
desenvolvimento do Estado da Bahia (Tese de doutorado. Universidade de Barcelona,
http://www.tesisenred.net/handle/10803/1944, 2003), Globalização e Desenvolvimento (Editora Nobel,
São Paulo, 2006), Bahia- Desenvolvimento do Século XVI ao Século XX e Objetivos Estratégicos na Era
Contemporânea (EGBA, Salvador, 2008), The Necessary Conditions of the Economic and Social
Development-The Case of the State of Bahia (VDM Verlag Dr. Muller Aktiengesellschaft & Co. KG,
Saarbrücken, Germany, 2010), Aquecimento Global e Catástrofe Planetária (P&A Gráfica e Editora,
Salvador, 2010), Amazônia Sustentável- Para o progresso do Brasil e combate ao aquecimento global
(Viena- Editora e Gráfica, Santa Cruz do Rio Pardo, São Paulo, 2011) and Os Fatores Condicionantes do
Desenvolvimento Econômico e Social (Editora CRV, Curitiba, 2012), among others.
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