RIO DE JANEIRO, BRAZIL – Brazil remained the leader in South America in 2021, accounting for more than 50% of the region’s gross domestic product (GDP) that year. The data comes from the World Bank and was compiled by CNN Brazil Business.
The country has held this position since the 1970s, with a large gap to second-place Argentina, which generated 15.3% of the region’s GDP in 2021.
For experts, the result reflects Brazil’s ability to better exploit its potential but does not mean that the economy does not have problems or that reforms are not needed to improve its performance.
Looking at trends in each decade since 1965, when Paraguay and Argentina began sharing data with the World Bank, we see that labor force participation was already higher in Brazil.
In 1995, Brazil accounted for 55.55% of total South American GDP. In 2015, it was 53.7%; in 2020, 51.8%; and in 2021, 50.12%.
However, the data does not take into account the participation of Venezuela, which no longer shares data with the World Bank.
For Lia Valls, researcher at Ibre-FGV and professor at UERJ, Brazil’s leadership shows the size of its own economy, which is associated with a large territory, a higher level of industrialization, wealth in mineral resources, and a competitive agricultural and livestock sector.
It points out that to calculate the participation in the so-called “current dollar”, the country’s GDP in local currency must be converted into U.S. dollars. In other words, if the exchange rate between the currencies is devalued, the GDP will have a lower value, even if the size does not change.
ARGENTINA
This fact partly explains one of the movements in the graph: when Brazil overtook Argentina as the country with the highest participation between the 1960s and 1970s.
In 1965, Argentina’s GDP was equivalent to 34.61% of total South American GDP, while Brazil’s was 27.43%. Ten years later, Brazil accounted for 49.15% of the total, while Argentina accounted for only 19.94%.
Valls pointed out that Argentina was one of the first countries in the region to industrialize at the beginning of the 20th century and before Brazil, which is why for years, the country had a GDP equal to that of European countries.
However, starting in the 1960s, the country fell into a succession of slumps, debt, high inflation, and currency devaluation, which caused the Argentine economy to lose its leadership role in South America and stagnate.
“Argentina went through a series of crises and experienced a strong liberalization that went awry. Then came a period of hyperinflation, things improved in the early 1990s, but in 2001 there was a deep crisis. After that, the situation improved but went into crisis again,” he sums up.
In the case of Brazil, industrialization took longer but was ultimately more successful, and at a time when countries in the region were trying to reduce their imports.
“The idea was to promote industrialization through protectionism, but that requires large markets, and the Brazilian domestic market is the largest; there is no comparison, so it has succeeded in diversifying industry, attracting foreign capital focused on the domestic market, and also it is a country that is very rich in resources, with great potential,” Valls says.
CHILE AND COLOMBIA
Chile and Colombia, which now rank third and fourth in GDP shares, have different economic characteristics than Argentina, which has led to an increase in the region’s shares of the overall economy, according to the professor.
“Chile is more stable, and Colombia, despite great inequality, does not have great inflation, both have strong and more stable macroeconomic indicators,” explains the professor, which has led to a growth trend in participation.
Paulo Feldmann, professor at FEA-USP, highlights that Brazil’s own leadership is that “our neighbors have regressed in the last decade,” while Brazil’s economy has stagnated or grown very little.
Many of the economic problems of the region’s neighbors, the professor believes, are related to attempts to adopt the so-called “Washington Consensus,” a set of economic policies advocated by the United States.
“In the late 1980s, the United States was concerned with opening up the world market, including the Latin American market, to its companies,” he assesses.
To that end, a series of measures were proposed that included opening these countries’ markets to imports, privatization, downsizing the state and replacing government planning with market-based solutions.
For Feldmann, this has resulted in many countries, such as Argentina, “breaking industry,” which has hurt their economies and their ability to grow.
“The North American model was different from the European model, where the continent’s major economies supported poorer countries to stimulate the formation of good consumer markets. That’s how all of Europe grew,” he says.
In South America, on the other hand, investment by the United States would have been low, causing a delay in the region’s economic development.
According to the professor, Brazil’s leading role was due to strong economic growth between 1940 and 1980, which was associated with strong planning, especially industrial policy, and the protection of national companies and products.
In addition, Feldmann believes that “Brazil has some competencies that have been developed over the years. The most important one is that in 1994, with the Real Plan, we learned to overcome inflation.
It is a different scenario from Argentina, for example, which is still struggling with high debt and inflation. The professor also believes that Brazil has a better background in economic management, which has proven to be an advantage.
Another factor he cites is that Brazil’s opening to imports, which began during the term of former President Fernando Collor, was paused during the term of Fernando Henrique Cardoso, who opted for a more “planned” opening.
“Some sectors were protected. The idea was not to open some sectors so as not to break the big companies through competition, or to strengthen the companies through advantages to allow competition with big foreign companies,” he explains.