Global Policy Forum

A New Model of Growth

By David de Ferranti and Vinod Thomas

Call it the Brasí­lia consensus. President Luiz Inácio Lula da Silva, who began his term as president of Brazil on the first of this year, is building a new development model to replace the late, unlamented Washington consensus - the vision of development that emerged from Western advisers in the 80's and 90's. This new strategy is that economic and social progress are inseparable.

This may sound like no more than common sense. Yet, following the conventional wisdom of many economists, developing countries for years have had to endure austerity plans before seeking improvements in basic living conditions. Desperately needed advances in health, education and employment were all too often slowed in an effort to pay down debt or reach economic growth targets.

Can Brazil's new model work? Can a Latin American country progress economically while simultaneously investing in the welfare of its people? In Brazil, early indications are positive. The government has protected health, education and other vital programs from financing reductions, and it is taking important steps to strengthen the impact of a cash transfer program for the poor, preventing serious deterioration in conditions during a year of slow economic growth.

But at the same time, President da Silva's administration has also succeeded in reassuring international markets that it is committed to macroeconomic stability and improvements in efficiency. Since the administration took over, the spread between the interest rates on Brazilian debt and U.S. Treasury debt, a key measure of economic confidence, has shrunk by two-thirds, while domestic interest rates are down more than one-third. The value of Brazilian currency has risen strongly, and the public debt has stabilized in relation to GDP.

There is still, of course, a long way to go. For all of its clout as the world's ninth-largest economy, Brazil remains among the world's most unequal countries in income distribution. Given the implied social disparities, it is easy to see why a lifelong social activist who reached the presidency might have been tempted to leap into crash programs of redistributing wealth. Instead, the administration is moving carefully and systematically to expand social assistance while making it more efficient and better targeted. This is not glamorous work, yet it promises long-lasting results.

Goals are specific and the level of achievement will be measurable. Examples are providing potable water to 3.7 million people in Brazil's poorest Northeast region, building 1.2 million housing units for the poor, forming 30,000 family health teams to deliver essential comprehensive care to those in need.

And the government is looking at expanding a school financing program that already helped get most of Brazil's children into primary schools, so that it will also cover secondary education - a step toward a more educated work force. President da Silva has been able to build on a sturdy foundation. The previous administration devised the cash transfers and managed to tame inflation, which had been was a millstone around the necks of millions of Brazilians.

The new government is now dealing with another longstanding problem - extraordinarily generous and costly pensions for civil servants. Public employees are not pleased by plans for change. But the administration is managing to maintain the bulk of its support from ordinary Brazilians, as well as from investors and business leaders at home and abroad. This is a critical achievement in a region marked by political instability and the sharpening of class tensions.

The fortunes of Brazil's development strategy are not exactly headline news in the industrialized world. But make no mistake, throughout the global South, all eyes are on Brazil. Achieving measurable gains in health, education, employment and government accountability, while accelerating socially and environmentally sustainable growth, is the hope of the early 21st century.

Success for the Brasí­lia consensus would affect development efforts everywhere. Fortunately, indicators so far are positive, pointing to success and to a path toward greater equality and well-being.