Nouveau Riche Brazil Hasn’t Learned How to Spread the Wealth

Complexo do Alemão, a Rio, Brazil, favela As Brazil’s economy continues to improve, social programs are receiving increased funding and visibility from the government. In particular, many of the region-specific projects of President Luiz Inácio Lula da Silva’s Growth Acceleration Program (PAC) aim to improve the country’s infrastructure as Brazil’s overall economic growth further benefits the country, including earning a coveted high investment rating from Standard & Poors (S&P).

The recognition alone has helped to maintain the trend of increasing flows of foreign investment into Brazil and, combined with an ever-increasing demand for food and oil – Brazil’s two strongest exports – the country has a unique opportunity to direct more funding towards social improvement.

But are these programs the best vehicles for sustainable social change in the areas of poverty, corruption and racial and sexual inequality? With this economic opportunity comes great responsibility to use government funds in the most effective and equitable way, and it remains to be seen whether the PAC is up to the challenge.

The economic boom and recent prosperity for many Brazilians does not change the fact that the country has deeply rooted social problems, such as racial and gender inequality and an unequal distribution of wealth. Furthermore, hundreds of thousands of legal Brazilian citizens are denied substantive rights based solely on their geographic location in the city.

Those who live in favelas (slums) must fight a prohibitively complex bureaucracy if they ever hope to legally own the land on which they live. Favela residents additionally face discrimination from banks and potential employers based solely on their addresses.

Launched in 2007, the PAC is the umbrella term for thousands of infrastructural projects around the country, such as the rebuilding of houses and the construction of roads, many of which aim to improve the situation of disadvantaged members of Brazilian society.

In a country known for its corruption and inefficient bureaucracy, one must question whether these programs sufficiently address the root causes of the social problems they intend to tackle. It also remains to be seen whether they generate lasting social change that will last far beyond Lula’s time in office and beyond the present boom economy.

Economic Upswing

Knowledge of the source of the newly available funding is crucial to a comprehensive analysis of the efficacy of the PAC. As a country previously laden with debt and rampant inflation, Brazil has experienced what was a potentially worrisome transition from a president practicing “safer” neoliberal economic policies to one with stronger ties to the political left, who hoped to pursue a somewhat alternative policy.

Lula has proven to be a president who has skillfully addressed the aforementioned debt and high levels of inflation that his predecessor, Fernando Henrique Cardoso, left to him. As president, Lula has continued in the direction of the Cardoso administration by, for example, cutting interest rates and renewing Brazil’s agreement with the International Monetary Fund to significantly decrease the national debt and stabilize inflation rates.

Brazil’s recent years of consistent economic growth resulted in an upgraded investment rating by U.S. credit-rating company, S&P, on April 30, 2008. The country’s investment grade rating is indicative of the opinion of S&P analysts that investment in Brazil and in Brazilian enterprises is now safe from the unnecessary risk that would result from unstable economic institutions and practices in the country.

This jump had the effect of immediately bolstering shares in BM&F Bovespa, the São Paulo stock exchange, and has been projected to have the lasting effect of being able to increase foreign investment.

However, in an interview published in the newspaper O Estado de S. Paulo, Pedro Bastos, the president of HSBC Investments in Brazil, notes that Brazilian entrepreneurs need to further convince investors of the long-term viability of the country’s private sector in order to attract the increased foreign investment warranted by the improvement in its S&P ratings.

Lingering caution on the part of investors both in Brazil and abroad can be traced to two root causes. Brazil’s growth resulting from the strength of its commodity sectors of food and oil may have more to do with the current global food crisis and the gross overspeculation in oil, and less to do with any significant and lasting improvement in the stability and efficiency of the country’s governing and economic bodies.

Secondly, Brazil has certainly experienced encouraging levels of growth, but that growth does not guarantee an equality of distribution throughout the population. Current economic growth follows the pattern of unbalanced wealth accumulation established during the military dictatorship, in place from 1964 to 1985.

The result of this growth pattern can be found in an unstable and superficial sheen of prosperity that mainly benefits a minority and almost drowns out the poverty faced by the majority of the population. The most unstable aspect of the current period of economic growth is that, for the most part, it reinforces the paradigm of inequality and exclusion already distressingly institutionalized in Brazilian society.

Unequal Wealth Distribution

Because of the unequal distribution of wealth, the existence of a program such as the PAC is an essential accompaniment to Brazil’s economic growth. In the past, it has been difficult to successfully execute social transformations due to the country’s untrustworthy economy.

Now that Brazil is prospering, President Lula is right to take the opportunity to use a portion of his surplus funds to begin enacting the social changes necessary to eliminate the exclusion of millions of Brazilians from the enjoyment of certain rights of citizenship.

The Brazilian media, as well as such government publications as “Brazil: Sustainable Economy, A Publication of the Ministry of Finance,” already have touted a decrease in inequality, despite the fact that the PAC, with its projects to improve the environment of many (though not all) of Brazil’s favelas, was launched less than a year and a half ago.

Before the PAC, scattered NGOs were the only organizational bodies working to improve favela living conditions. Government officials’ optimism in the face of overlapping needs for better infrastructure and for massive social change is commendable and necessary, but probably insufficient. However, the glorification of results that have barely begun to materialize, and thus the glazing over of still existing problems, is akin to pretending that the issues don’t exist or can be easily mastered.

That attitude is strikingly similar to the widely disseminated idea of Brazil of the 1930s, which maintained that the country was a racial democracy, exempt from race-based conflict or discrimination, which is now seen as a clear fallacy since racial inequalities remain a pressing social concern.

PAC in Practice

The Growth Acceleration Program (PAC) is an innovative approach to improving the lives of the most disadvantaged- those living in favelas. Rather than using the improvement of the favelas’ environment as one aspect of a larger social program, the usually modest infrastructural projects involved in rebuilding the slum communities are intended to be the catalysts for social change.

They aim to reverse the social patterns of exclusion that hinder already poor favelados (those who live in favelas) from getting jobs, receiving mail, applying for credit or using commercial delivery services.

In Rio de Janeiro, the work of the PAC in favelas such as Rocinha and Complexo do Alemão, occupies a high-profile spot in the Brazilian media. Favelados are employed as workers on the projects that improve their own living spaces, and thus the projects aim to temporarily address unemployment along with the instability of favela construction.

In August 2007, Lula announced an initial investment of US$ 4.2 billion in the PAC and an array of infrastructural projects to be budgeted in such areas as sanitation, water, sewage, and electricity, as well as road and housing construction, in order to improve the conditions of some of Brazil’s largest favelas.

On May 7, 2008, Casa Civil minister Dilma Rousseff, a leading advisor to Lula and potential presidential candidate, announced that US$ 1.3 billion of the budget allotted for the PAC this year had already been spent. This level of government funding for projects that respond to the problems of the favelas is unprecedented.

These numbers alone, however, do not speak to the quality of project implementation, which could be of equal if not greater importance. Thus, aggressive oversight must be maintained. With that in mind, it would be wise for more attention to be paid to the social aspect of the PAC and its projects and whether its social justice aims are successfully being attained.

Even aside from this critical perspective, the rate of completion of the PAC projects is already being contested as it enters its second year. The Brazilian Court of Accounts (TCU) reported that the government completed only 12% of the projects initiated in 2007, whereas the Headquarters of the Office of the President contends that 80% have been completed (“Dilma nega cárater eleitoreiro do PAC e baixa execução orçamentária do programa,” 7 May 2008, A Folha de S. Paulo).

In her statement to the Senate Infrastructure Committee, Rousseff attributes the disparity to differing “methodologies” used by each organization, an explanation that might statistically explain a small margin of error, but which is somewhat weak when attempting to explain a difference of 68 percentage points.

The rate of completion of PAC projects and the appropriate use of the massive funds being invested in the program unquestionably should be evaluated by the Brazilian Senate. Additionally, transparency must exist in both the progress and spending reports on PAC projects and any senate proceedings regarding their analysis in order to prevent any transfer of pork-barrel public funds into private pockets.

Aside from these metrics, however, social change, a much more difficult concept to measure in numbers, will not automatically occur as a result of the improved engineering services in the favelas, as PAC’s creators would like to claim.

President Lula, who lived in a favela in São Paulo as a child, has consistently highlighted his interest in improving the lives of impoverished Brazilians. In April 2003, he told São Paulo slum dwellers, “We have to give housing too to those who live on hillsides” (“Brazil to Let Squatters Own Homes,” 19 April 2003, New York Times).

This project cannot be taken lightly because of the discrimination and exclusion suffered by favelados. To fully support their inclusion in society, and to truly improve their quality of life, long-term employment opportunities that go beyond the short-term positions created by the PAC project must be created. To that end, employers will no longer be allowed to discriminate against favelados.

Increased employment, and thus increased integration into society, will ensure that the favelados can afford to maintain their newly improved residences and to manage the skyrocketing value of their land. If their housing is improved, but the favelados cannot afford to make repairs or are convinced that a large short-term profit could be made by selling their property rather than staying and using it themselves, then the changes envisaged by the PAC are not sustainable and will not significantly lower Brazil’s social divides.

Brazil is an especially innovative country when it comes to finding sustainable options for its citizens in areas such as transportation and housing. In February 2008, ethanol consumption in Brazil exceeded the use of gas and 88% of cars sold in the country are “flex fuel,” allowing the use of either ethanol or gasoline.

In the three southern states of Brazil, the Cooperativa de Habitação dos Agricultores Familiares works with Nossa Caixa, a major Brazilian bank based in São Paulo, to assist rural families with precipitous housing to rebuild their homes with sustainable building techniques, such as using locally abundant organic materials such as corn to build walls.

The idea behind the Cooperativa project is that housing is the key to positive change in a family’s socio-economic status. The PAC is in an excellent position to use similar sustainable techniques that would reduce the cost of home maintenance for the favelados and significantly trim their negative environmental impact.

Finally, the program is ominously silent on the subject of giving those occupying the lands in favelas the deeds to their property, thus legitimizing their presence under Brazilian law. This process is undeniably complex, but must occur for occupants to feel a sense of dignity arising from legal possession of one’s own house and, additionally, the security of no longer being considered a squatter.

Before the PAC and its projects are unanimously declared successful, they must be audited concerning actual levels of performance.

This analysis was prepared by COHA Research Associate Susan Schaller. The Council on Hemispheric Affairs (COHA) – – is a think tank established in 1975 to discuss and promote inter-American relationship. Email:


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