São Paulo – The Institute of Applied Economic Research (Ipea) disclosed on Thursday (29) a study that shows reduction of public investment in Brazil this year. “In 2010, the rate of public investment reached the highest level in the period since establishment of the country’s new currency, the real (in 1994), but there are signs of reduction in 2011,” according to Ipea Communique Nº 126, entitled “How is public investment doing in Brazil?”.
Last year, according to the institute, the rate of public investment reached 2.9% of Gross Domestic Product (GDP), but preliminary figures show that the percentage dropped to 2.5% in 2011. The figures include federal, state and municipal administration, but not that of state-owned companies.
One of the reasons for the reduction is what the institute calls the “electoral cycle”, that is, investment rises in electoral years and drops in the following year, which is generally one for fiscal adjustment. Last year there were elections for president and state governor. In 2011, those elected complete their first years in office.
In this respect, the Ipea recalls that in early 2011 the Federal Government announced budget cuts of 50 billion Brazilian reals (US$ 27 billion) and, later, announced plans to expand this total by 10 billion reals (US$ 5.4 billion), confirming the thesis that one year is of heavy investment followed by one year of belt tightening.
As public investment has grown steadily from 2004 to 2010, the Ipea inquires whether in 2011 there was a reversion of this tendency. The answer is that it is still early to tell for sure, as the figures available are only for the first half of the year and it is necessary to take into consideration the “electoral cycle”, but the institute believes that it “is probable that the rate of investment in 2011 should not return to the same level as that identified in 2010.”
The study analyses two recent periods, in 1995 and 2003, when growth of public investment was low, and 2004 and 2010, when there was greater investment. To the Ipea, this phenomenon may partly be explained by the change in government guidance as to what should be the state’s part and marks the transition from the Fernando Henrique Cardoso government to the Luiz Inácio Lula da Silva government. President da Silva and his Worker’s Party, PT, always defended a state with greater participation in the economy.
Another explanation is the economic growth of the country, which constantly boosts country investment, despite the “electoral cycle”. According to the Ipea, 1% growth in country GDP is accompanies by 0.42% growth in public spending. In this respect, the institute states that the continued tendency for growth in investment “depends on decisions to be taken in future and on the capacity of authorities to create space for investment.”
*Translated by Mark Ament
