57494 1st Quarter 2010 B r a z i l E c o n o m i c Te a m Quarterly Knowledge Report INTERVIEWS A DARK SIDE OF FINANCIAL INTEGRATION: THE GLOBAL CRISIS TRANSMISSION TO BRAZIL 3 Ricardo Paes de Barros analyses what is behind Brazil's By Tatiana Didier* significantly more complex advances in pov- mechanisms in the trans- erty and inequality T he 2007-2009 crisis showed that in a financial integrated world, shocks trans- mission of the US crisis. For instance, the Brazilian stock market was not 11 Renato Flôres: Brazil's WTO mit rapidly from one country to another. What are the main transmission channels? Are immune to the sizeable external shock, although it seemed somewhat resil- dispute against the they country specific? To an- ient in comparison to US swer these important ques- other countries if one tions, in this article we com- looks at aggregate stock 13 Massimo Cirasino: Brazil pioneers pare the experience of Brazil with that of other emerging market economies during the market returns over the crisis period1. Between July 2007 and April 2009, remittance support recent global financial crisis. the Bovespa index fell by for Haiti Our main finding is Brazil's 12.7%, whereas stock was hit by the global crisis markets in other BRIC mainly through the financial countries fell between channel. This does not mean 26.7%, in India, and 47%, that financial autarky is the in Russia, and even larger solution but that financial downturns were observed in 50% of its value. From this INSIDE THIS ISSUE exposures should be carefully OECD countries (decline of perspective, Brazil does not managed to avoid that in- 47.6% on average) and East- seem as shielded from the 5 creased financial integration ern Europe and Central Asian massive external shock as the Procurement Rules could re-create those systemic (ECA) countries (65% declines aggregate data suggested (see Freight Logistics 7 vulnerabilities that character- in stock market indices on Figure 2, page 2). Moreover, ized Brazil's past history. average) over the same period the Bovespa displayed a very Household Surveys 9 (Figure 1). high degree of co-movement We have observed a highly with US markets, reacting 16 synchronized nose-dive in However, despite having one significantly more than mar- In the Loop financial markets across the of the lowest accumulated kets in China or even in Ice- globe, especially since Sep- losses over this period of tur- land, although markets in tember 2008 (see Figure 1, moil, the Brazilian stock mar- India and Greece faced even KEY DATES page 2). However, aggregate ket has been highly volatile, stock market returns hide losing at some point almost (Continued on page 2) · XII Workshop in Inter- national Economics and Finance--Rio, April 8-10 · IBSA Summit--Brasília, AS DIVERSE AS BRAZIL April 14-15 EDITORIAL BY MAKHTAR DIOP · BRIC Summit--Brasília, April 16 · Brazil-Africa Agriculture F rom Brazil's role in pio- neering a key financial instrument in the reconstruc- Report mirrors the diversity of issues and themes in Latin America's biggest economy. social researchers in Brazil, Ricardo Paes de Barros, sur- prisingly points out, these Summit-- Brasília, May 10 tion of Haiti, to insights on why achievements are not yet fully Brazil's equity market suffered In recent years, Brazil has understood. In an exclusive -12 deeply in the crisis while the achieved remarkable ad- interview with Mauro Azeredo, · Social Protection Fo- real economy was barely af- vances in reducing poverty Paes de Barros explains the rum--Rio, June 1-3 fected, this third edition of the and inequality. However, as Brazil Quarterly Knowledge one of the most renowned (Continued on page 16 ) Printed on recycled paper Page 2 1st Quarter 2010 A DARK SIDE... (CONTINUED FROM PAGE 1) stronger co-movements (see Figure 3, page 10)2. To understand this heteroge- neity in markets' reactions to the 2007-2009 crisis, we fo- cus on country-level character- istics representing the differ- ent transmission channels3. First, let's analyze on financial linkages across markets. These linkages work mostly through the financial account (or capital flows) among coun- tries connected to the interna- tional financial system. Such linkages capture not only di- rect connections to the crisis- hit country through investors' direct exposures but also indi- rect ones through the actions its considerable stock market respectively (See Figure 4, of common creditors. For ex- reaction to the external shock. page 15). ample, foreign investors own On average, countries receiv- ing a large share of invest- Furthermore, a large co- "Financial linkages assets in the crisis country (or movement with US markets vice-versa) and in response to ments in equity markets from were important in shocks affecting the liquidity US investors have experienced during the turbulent period of a more pronounced reaction to 2007-2009 could have also transmitting the crisis and/or asset quality of their been observed even if local portfolios, they might need to the US crisis, reflecting a "margin call" story where US investors were not directly to Brazil and explain raise cash by selling their investors facing large losses at exposed to the US stock mar- stock holdings in other coun- ket. A significant impact could the considerable stock tries. These market linkages home withdraw money from their foreign investments. This still have been felt in local market reaction" can be driven not only by mar- markets if their country were gin calls or internal provision- seems to apply to Brazil: US holdings of equities in Brazil very open to financial flows ing practices, but also by and its stock market were very changes in risk aversion or by were around 24% of total mar- ket capitalization. Other BRICs liquid as foreign investors, who herding behavior. were exposed to the US and and ECA countries, on the The data suggests that these other hand have received sig- had to redeem other invest- financial linkages (both direct nificantly less flows and hence ments to make up for their US and indirect) were indeed im- faced US equity holdings of losses, seemed to have exited portant in transmitting the only 7% and 4% of their mar- open and liquid markets first. crisis to Brazil and can explain ket capitalization on average, This channel also seems to have been central for Brazilian stock markets. The Bovespa is the most liquid market and the greater recipient of capital inflows in Latin America. Nev- ertheless, other BRICs also seemed to have been largely affected by this channel as they have received greater inflows and have had more liquid markets than Brazil (See Figure 5, page 15). If the exposure of local mar- kets to US investors (and the financial channel more broadly) seems to have been so important in the transmis- (Continued on page 10) Quarterly Knowledge Report Page 3 WHAT IS BEHIND BRAZIL'S POVERTY A N D I N E Q UA L I T Y A C H I E V E M E N T S ? By Mauro Azeredo In the case of the non- labor income, a very impor- R icardo Paes de Barros is one of the foremost and most influential social re- tant factor in reducing extreme poverty is the Bolsa Família program, searchers in Brazil. He has which is very well focused, been affiliated with the Insti- reaching the poorest fami- tuto de Pesquisa Econômica lies. It has huge impact on Aplicada (IPEA) for many extreme poverty, particu- years, including serving as its "The fall in inequality larly when it is measured Director of Social Studies. with a low base line and did not result from using the gap to the pov- In this exclusive interview to erty line. The contribution demographic factors BET's Mauro Azeredo, he says that the major advances in of Bolsa Família to the fall or greater access of in poverty using the poverty and inequality reduc- squared gap to the poverty the poor to the labor tions in Brazil are not yet com- line is even greater. pletely understood in the long market. It is either run, but there have been im- In the labor market, al- portant advances compre- though part of the reduc- IPEA's Ricardo Paes de Barros: Brazil is due to labor or non- reducing poverty and inequality at an hending mechanisms at work tions in inequality are a astonishing pace. labor income" in the shorter term. PB, as he result of market imperfec- is known, has a PhD in Eco- tions, such as discrimination nomics from the University of or segmentation, the principal Chicago. Following are the than that of the rich. factor for the reduction was highlights of the interview: the narrowing of the premium Currently, Brazil is able to on qualification. That is, the make its social policies reach BET: What are the factors difference in income between behind the large reductions in the poor much more than skilled and unskilled workers before. Ten years ago, social poverty and inequality in Bra- fell in Brazil. This is the major inequality in Brazil was sta- zil in recent years? factor behind the fall in wage tionary and each researcher Ricardo Paes de Barros: It is inequality. had ten hunches on how to very difficult to determine make inequality fall. Today, What we do not know yet is inequality is falling at such a what are the ultimate causes how much of this fall in the for the reduction of poverty speed that social scientists difference between skilled are unable to explain just why and inequality in Brazil. Thus, and unskilled workers oc- my work seeks to find out the this is happening. curred due to market factors - immediate determinants. The since there are more skilled first thing we see when we BET: These mechanisms were "Years ago, each workers in the market now ­ applied in a context of high look at poverty is that part of its reduction comes from eco- or, on the other hand, if it poverty and inequality, and social researcher had results from increases in the despite advances Brazil is still nomic growth, and part from minimum wage, which also ten ideas on making the decline in inequality. This relatively poor and unjust. can increase returns for low- What social instruments decrease in inequality re- skill workers. inequality fall. Today, sponds for approximately half would be needed to take Bra- of the country's reduction in BET: Income transfers are zil to a more appropriate pov- they are unable to poverty. But what explains the erty level.? essential to maintain these explain just why this fall in inequality? achievements? Brazil already PB: The fact that these poli- knows how to distribute in- cies have been very effective is happening" It is possible to say that the come other than by helicopter fall in inequality did not result in Brazil in the past does not (as you said many years ago)? mean that they will remain from demographic factors or greater access of the poor to effective in the future. The PB: There is no doubt that nature of poverty has the labor market. Instead it Brazilian social policy proved results either from non-labor changed; it is smaller and remarkably effective to re- more concentrated in some income, such as Bolsa duce poverty and inequality. Família, or from an improve- groups. The problem of hun- We are reducing poverty and ger is a typical case. Cur- ment in labor income. In other inequality at an astonishing words, workers have a better rently, malnutrition indicators pace. The income of the poor salary. is growing five times faster (Continued on page 4) Page 4 1st Quarter 2010 POVERTY ACHIEVEMENTS... (CONTINUED FROM PAGE 3) in the Northeast are very simi- over the last 10 year is not government that wishes to lar to those of the Southern merely a disguise or a com- step up poverty and inequality region of Brazil, something pensation process. reductions? that would be unimaginable 10 or 20 years ago. I think the country actually PB: I think the greatest risk, reduced inequality. But there since Brazil has had such a But, on the other hand, hun- were no structural changes. great success, is to crystallize ger indicators in rural areas of This means that the old story this success and try to repli- northern Brazil remains very about inequality being a result cate it continuously. Saying high. I would never expect this of the lack of major structural something like: "We now have "Policies are like development. It has always changes might actually have the recipe for the cake, let's been assumed that hunger been just an excuse from do it again." I think this will technologies, they could not exist in the rural those who wanted to say that not work. areas of the North, where the reducing inequality required become obsolete too. population is in close contact enormous efforts or a miracle. The challenge is to realize that we must continue to in- So it is necessary to with nature. What the policy of the past 10 novate in social policy at all update , innovate and This may mean that the same years has shown is that if you times. Another risk for the policy that worked for the do a few simple and easy next government, stemming create new ones" Northeast, practically from the pre-salt oil re- ending hunger, may not serves, etc., is losing the be the one that will eradi- incentive to continue to cate hunger in rural areas pursue more efficient of the North. policies due to the abun- dance of money. This inef- This example shows that ficiency will take its toll we have to understand eventually. that success in the past does not guarantee fu- Brazil's problem is that the ture success. Policies are country has been through like technologies, they a period of great success become obsolete too. So The Bolsa Família benefit card, held by more than and now has lots of it is necessary to keep 12 million Brazilian families. money. Society could updating them, innovat- reach the following con- ing and creating new policies. things, the country's inequal- clusion: "If we have a lot of ity can fall and reach levels money, there is no need to BET: Were the institutional that are similar to the rest of assess what was done. We'll and structural factors behind the world. That is, the last 10 just repeat it again." This can inequality generation disman- years have shown that ine- go wrong. tled? As the social programs a quality in Brazil has always "We need to be able mere palliative? been very similar to inequality Brazil has to take advantage of the affluence and of the PB: Brazil has always been in other countries. to transfer a basket of good social policies, but also one of the most unequal All that was needed was to assess all the policies in opportunities to the countries in the world. It was provide basic services such place, find out what was most not the poorest country, since effective, deploy it and re- poor. And this basket it is a medium income coun- as education and creating a basic social protection net- place what was inefficient. cannot be rigid, it has try. But poverty in Brazil is work. Inequality then fell here high compared to its income. as it fell in other parts of the Along these lines, Brazil to be created from We have always had the big- world. So, the great structural needs to work on integrating gest income inequality in the policies. Bolsa Família cre- their needs" planet, but poverty-wise we reforms were not required, ated a connection to the poor- because in fact they were not were better off than sub Sa- preventing the reduction of est families, we now know haran Africa and South Asia, inequality. Inequality was who they are, and have their for instance. generated again and again in names and addresses. For a long time it was be- Brazil, and had nothing to do Today we give these people a lieved that inequality in Brazil with these structural changes. transfer of 20, 50, 60 reals. was high because of struc- BET: Brazil will have general We need to be able to trans- tural factors. But I think that elections this year. What fer a basket of opportunities the decrease in inequality would you recommend to a (Continued on page 6) Quarterly Knowledge Report Page 5 PROCUREMENT RULES: DO THEY MATTER, AND HOW MUCH? By Luis Blancas to inspect all bids before the qualify only the most competi- Alexandre Borges second envelope is opened, tive bids (usually the three Laura Chioda and and may file a complaint to lowest bidders). By doing so, Tito Cordella have their bids reinstated or relatively high bids--which to request rejection of some- would have virtually no I nvestment in infrastructure is key for Brazil's economic growth, but public works take one else's bid. Bidders who disagree with the evaluation process have three channels chance of winning the con- tract--would be safely ig- nored. In addition, the num- too long to be realized. How to voice complaints: (i) an ber of lawsuits will also be responsible are procurement administrative channel; (ii) limited, as only the winning rules for such delays? Is it the Supreme Auditor, which bid would eventually be chal- possible to improve the timeli- reports to the legislative lenged and, presumably, only ness of Brazil's public invest- branch; and (iii) the country's by those bidders who con- ments by changing procure- courts of law. sider themselves sufficiently ment rules? "competitive" on price. Even though a clear adminis- With these questions in mind, trative complaint resolution Following such a simple logic, we looked at the recent ex- process is set out in the pro- several states have in fact perience of the state of São curement law, it is rather inef- modified their procurement Paulo which, by changing fective in settling complaints laws to allow for inverting the procurement rules and adopt- as it is carried out by the very bid evaluation phases in a ing the so-called inversão das agency whose decision gave procedure known as inversão fases mechanism, has been place to the complaint in the das fases. Besides São Paulo able to reduce delays in pub- first place. As a result, unsat- state (2008), Bahia (2005), lic procurement by almost 40 isfied bidders tend to either Paraná (2007), and Sergipe days. On the basis of this go straight to the courts to (2006) have all enacted sub- experience one may wonder settle complaints, or do so national laws allowing phase whether such a system could after utilizing the administra- inversion for concorrências in be adopted at the federal tive complaint resolution proc- the context of public works level to help speed general ess as a matter of course. procurement. program implementation, including of the flagship In recent years, the country's The use of inversão das fases growth and acceleration pro- Supreme Auditor--the Tribu- has been a highly controver- "The use of phase gram (PAC). nal de Contas da União (TCU) sial issue between govern- --has been flooded with com- ment officials on one side-- inversion has been a The Brazilian government's plaints about government arguing for faster procure- highly controversial procurement system for large procurement processes. A key ment of works--and construc- infrastructure works is a two- reason is that bidders quickly tion companies (and their issue between envelope open competitive understood that any citizen lawyers) on the other-- bidding system called concor- can refer a case to TCU to be claiming that phase inversion government and the rência. More precisely, bids reviewed free of charge, may result in awarding con- construction are presented in two separate whereas regular lawsuits in- tracts to unqualified contrac- envelopes: the first contains volve costly legal fees. More- tors or perhaps worried about companies" the technical proposal along over, even after an unfavor- more competitive auctions. with qualification documents; able decision by the TCU, the second the price pro- bidders can still file a lawsuit In order to shed some light on posal. In the first stage, bids at regular courts if they re- the true impact of inversão that do not meet the qualifica- main unsatisfied. das fases on process delays tions and technical require- and final prices, we studied ments are disqualified and Since neither the TCU nor how the regime change af- their price proposals are re- courts of law have to answer fected the outcome of works turned unopened. In the sec- in a pre-determined time- procurement in São Paulo ond stage, the price enve- frame, the large number of when compared to Minas lopes of qualified bidders are lawsuits leads to long delays. Gerais, which has kept the opened, and the contract is original two-envelope system. awarded to the qualified bid- It is clear that the two- We utilized procurement data der with the lowest price. envelope system as currently from majority state-owned implemented is not time- water utilities in each state. According to Brazilian pro- efficient. A simple way to im- Specifically, we follow a differ- curement law, all bidders--in prove on it could be to look at fact, all citizens--are allowed prices first and then post (Continued on page 6) Page 6 1st Quarter 2010 PROCUREMENT... (CONTINUED FROM PAGE 5) ence-in-difference strategy works. Before inversão das were on average R$7 million whereby projects from São fases, São Paulo projects took more expensive than in Minas Paulo are considered in the roughly 55 days longer than Gerais in 2007, but that 90% treatment group, while Minas those in Minas Gerais. The of this gap was eliminated by Gerais projects act as the new procurement process the new procurement method. control group. Our data cover closed more than half of that However, such a finding dis- the universe of projects gap, speeding up the award- appears once we control for awarded in 2007 (the period ing cycle by about 38 days. It each project's estimated cost. preceding the regime is plausible that project size is This suggests that the budget- "The mechanism change), and those awarded related to the duration of the ing process may also have in 2009 (post-regime procurement cycle, perhaps changed in response to the appears to have change), representing a total via the likelihood of litigation new procurement regime in significantly increased of 799 projects. The implicit or other characteristics of the São Paulo. This suspicion is (and critical) identifying as- procurement process (e.g., confirmed by a model in the speed of the sumptions are that, with the project complexity). When we which the outcome is instead exception of the São Paulo control for project estimated the estimated cost set forth procurement process" procurement process, no cost (which is provided to by public authorities: by this other major change across bidders by the implementing measure, São Paulo's pro- the two states occurred and agencies prior to bid submis- jects were on average R$8.5 macro level shocks affect sions), we observe that an million more expensive than both states in the same man- additional million reals in in Minas Gerais at baseline, ner (common trend assump- estimated cost is associated but this excess is entirely tions). with one additional day's de- eliminated in the new regime, lay until project award. perhaps in expectation that Our main result is that the the new auctioning mecha- new procurement mechanism The results on prices are less nism would yield cheaper appears to have significantly conclusive. Focusing first on increased the speed of the award amounts (in constant contracts procurement process for reals), contracts in São Paulo POVERTY ACHIEVEMENTS... (CONTINUED FROM PAGE 4) to these people. And this bas- tremely poor in the country. Now, if Brazil is to take ad- ket cannot be rigid. It has to vantage of this knowledge be created from the needs of BET: How do you see the per- bank, the country must also these people. That is, they formance of institutions such be open to rethink its poli- would receive an integrated as the World Bank in this cies. The country should not assistance, containing what respect? What is their future take success for granted; they need to get out of pov- role in countries like Brazil? assume that its policies are "Brazil needs to count erty. perfect, and that the Bank is PB: I think that Brazil needs wrong if it says otherwise. If it on a knowledge base To some extent, Bolsa Família the World Bank as never be- does this it will miss out on offers relief from poverty, but fore, but less as a financial that provides the bank and more as a knowl- much knowledge. what the country wants is to technical assistance eradicate it and transform the edge bank. Brazil's problem is that, hav- productive capacity of those ing experienced the success necessary to support who are poor. I think it is only Brazil has always been and and being relatively rich, the possible to transform this with remains an isolated country, country should still have the social improvements" with an inward gaze and little discipline to evaluate itself, a basket of opportunities for information on policies and find out what worked, what every very poor Brazilian. practices from other parts of has to be improved, and do We already know who they the world. The design, redes- so. I think that if Brazil wants are. Now we need to have our ign, evaluation and continu- to improve its social policies, policies reach them as a prior- ous improvement of social the Bank will be a terrific ity. That is what Chile does in policies in Brazil need to partner in terms of providing the "Programa Puente", which count on a knowledge base knowledge tries to take a basket of op- that provides the technical portunities for all the ex- assistance necessary to make these improvements. Quarterly Knowledge Report Page 7 DECREASING FREIGHT LOGISTICS COSTS IN BRAZIL By Jorge Rebelo and improvements in reduced (including transport, inven- Sivan Tamir levels of corruption, IT infra- tory, warehousing, etc.) for a structure and private logistics series of export products W hat can a country such as Brazil do to lower one of the larger expenses in services, but has room for improvements in customs performance, levels of fees, passing through the port. The results are interesting: food- stuffs and grains are bulky, its GDP? According to a re- and quality of infrastructure. and hence account for a large cently completed World Bank The World Bank's Cost of share of the TLC. Likewise, study, lower logistics costs Doing Business 2009 ranked equipment and machinery can be achieved by improving Brazil 125th out of 181 and automotives have a high transport intermodality and economies, noting that it TLC because of their high encouraging non-road trans- takes more than twice as long value. Finally, fuels have a low port through appropriate in- for Brazil to export as it does TLC, which reflects their rela- frastructure investments and the United States. Conversely, tive proximity to the Port of policy changes. when compared with China, Santos. efficiency in Brazil is high yet Comprising between 15-18% the cost structure is poor on a In uncovering the bottlenecks of Brazil's GDP (Bank esti- global level (cost to export a impeding products moving mates), logistics costs are an container is US$1240 for through the Port of Santos, important yet difficult compo- Brazil compared with US$460 transport, inventory, ware- nent to reduce, but the im- for China and US$990 for the housing, port costs, adminis- pact of such actions translate USA). The World Economic trative costs and external into significant cost savings Forum's Enabling Trade Index factors such as interest and for virtually every part of soci- ranked Brazil 87th among exchange rates, were ana- "Lower logistics costs ety. For Brazil, lowering logis- lyzed. Generally, transport tics costs is extremely rele- 121 countries, noting that its in Brazil could be performance is average or and port-related costs were vant to continued economic better in availability and qual- important bottlenecks. Yet, as achieved by growth, which evidently relies ity of transport services, avail- many export products are heavily on international trade ability and use of technology, manufactured a short dis- improving transport as exports and imports ac- count for 15% and 12% re- and efficiency and transpar- tance from the Port of Santos intermodality and ency in border administration. (average 83km), the entire spectively of GDP. However, there are impedi- logistics chain becomes the encouraging non-road ments and room for improve- bottleneck. Consequently, As other indicators have high- inland transport infrastructure transport" lighted, Brazil has been able ment in addressing the level of protectionism, quality and such as railroads, roads, and to successfully reduce signifi- waterways as well as the Port cant impediments to the logis- availability of transport infra- structure, and efficiency of of Santos, emerge as clear tics systems. The World areas for policy intervention Bank's Logistics Performance customs procedures. for logistics chain improve- Index 2010 has ranked Brazil Empirical evidence supports ments. 41st out of 155 countries and these observations. The Port has noted that Brazil has of Santos was selected as a With a total cost of R$11 bil- performed well in terms of case study to compute the lion (over US$6.5 billion), the efficiencies in processing Total Logistics Cost (TLC) Federal and State govern- exports/imports and evident ments have planned port related transport projects for Figure 1: Logistics Performance Index 2010 which they will contribute close to 50% of the total in- vestment, relying on the pri- vate sector to finance the remainder directly or through concessions. The impact re- sults of such projects are impressive: Small reductions in railroad costs as a result of creating an "express service" freight rail running on higher speeds will lead to a 4% drop in the TLC which can result in (Continued on page 8) Page 8 1st Quarter 2010 FREIGHT LOGISTICS... (CONTINUED FROM PAGE 7) a 45% increase in rail de- be reduced to 12% of GDP motion a series of institu- mand. Projects that can re- (which translate to approxi- tional and policy development duce customs processing mately US$4 billion savings actions, as well as major in- time by 4 days would reduce annually) which should be the frastructure investments, by 16% the TLC. The pro- minimum target to be according to the study's rec- posed improvements to the achieved within ten years. On ommendations. Short term transport infrastructure would the other hand, the ideal sce- actions to improve competi- reduce the TLC, improve the nario, one which relies heavily tiveness include strengthen- reliability of the logistic chain, on additional investments in ing the national logistics enhance the competitiveness railway lines, new rolling council with more private of São Paulo and Brazil, and stock, and additional ethanol sector involvement, continu- fundamentally change the pipelines, result in a logistics ously updating the national logistics system to be more costs of 9.4% of GDP logistics strategy (PNLT) to reliant on railroads and less (approximately US$9 billion respond to emerging de- on trucks. savings annually). mands, strengthening the logistics planning unit of the The study also presents a Analyses show that major Ministry of Transport, estab- sketch planning exercise with economies spend 5% to 7% of lishing various data collection a set of solutions proposed by their GDP each year on infra- systems, and implementing logistics system us- specific infrastruc- ers as measures to ture and supply lower logistics costs chain investments. in Brazil. Each sce- Medium and long nario consists of term actions "Building greater different logistical should be aimed logistics efficiency in development pack- at fostering inter- ages ranging from modality and ena- the PAC may reduce policy changes to bling cost reduc- infrastructure pro- tions in the logis- logistics costs by 12% jects. By estimating tics system, includ- of GDP" the cost and benefit ing large infra- of each package, one structure invest- can evaluate how ments, coupled logistics costs alter with new stream- as a percentage of lined customs and GDP given a particular invest- structure, while according to phyto-sanitary procedures, ment. The results prove inter- the World Bank, investments such as outlined in the sketch esting; the scenario which in infrastructure in Latin planning exercise and the most closely matches the America need to reach 4%-6% PNLT. Such actions will en- Government's current Growth in order to compete effec- able Brazil to gradually shift Acceleration Program (PAC - a tively with Asian countries the modal share in favor of federal government initiative such as Korea and China. waterways, rail and pipeline for 2007-2010 to stimulate Brazil, on the other hand, has transport resulting in an en- the productive sector and spent in the range of 0.6% to hanced total logistics frame- thereby increase social bene- 2.1% in the last few years. To work, promoting improved fits through government in- reach those higher spending performance and reduced vestments in infrastructure) levels, it is estimated that costs in a more environmen- results in some gains to the Brazil should continue, at a tally-friendly way. Brazil's logistics costs attributed minimum, the effort started freight logistic system is im- mainly to the continued focus with PAC by investing in infra- proving fast as shown by the on roads but would not signifi- structure on a continuous LPI, which jumped from 61st cantly reduce logistics costs basis over the next 10-20 in 2007 to 41st in 2010, but a from their current position at years, taking into account the more intensive and concerted approximately 15% of GDP. priorities established in the effort between national and However, building upon the National Plan for Transport state governments and the projects in the PAC by further Logistics. private sector is needed to improving customs, adding meet the ever growing de- port terminals, intermodal To enhance its competitive- mand challenges the country transfer terminals, and ware- ness in the global market- faces in the 21st century housing, logistics costs may place, Brazil needs to set in Quarterly Knowledge Report Page 9 H O U S E H O L D S U RV E Y S AND MICRO - D A TA I N B R A Z I L By Romero Rocha and another with house- hold characteristics. It is T he Brazilian Institute of Geography and Statistics (IBGE) is responsible for the representative for Brazil and its states (there is no information about broadest household surveys municipalities). The in Brazil. The quality of infor- households are ran- mation provided by exercises domly selected every is recognized by most interna- year, but they are not tional researchers. There are followed in the subse- three large household surveys quent years (there is no in Brazil. The first one, the panel data). detailed information on National Household Survey household expenditures. It (PNAD), concentrates on infor- The main characteristic of has less detailed information mation about income and PNAD is that the survey brings about income and labor than labor, but also brings informa- detailed personal information, PNAD, but it is the only survey tion about migration, educa- such as age, gender, race, with detailed information tion, fertility and wealth of the household condition (if the about household expendi- household. The second, the person is the head of house- tures on food, education, Family Budget Survey (POF), hold, the spouse, the son/ health, clothes, energy, water, concentrates on information daughter, the maid, etc), if the deposits, assets, etc. The about consumption of house- person has a living mother survey is released every five holds. And the last one, the and if the mother lives in the years and it is representative Employment Monthly Survey household. Besides that, the for the country. (PME), concentrates on infor- questionnaire brings detailed mation about employment questions about income (from Finally, the Monthly Employ- and labor income. labor, from agriculture, from ment Survey monitors em- social security system, from ployment and labor income in IBGE, with support from the rents, from interest rates and the six biggest metropolitan World Bank, is now preparing other transfers), labor areas of Brazil. There is no "IBGE, with support big changes in these surveys. (Economic Activity, unemploy- detailed information about from the World Bank, PNAD and PME will be ment, child labor, job position, personal characteristics, and merged into a single quarterly with or without labor register, also the survey is not repre- is preparing big survey, as the current PNAD. union filiations, hours sentative for all the country, However, it will follow house- worked), migration (state of but it has the advantage that changes in its flagship holds for five quarters, then birth, if the person used to it follows the families for 4 surveys" leave them out of the sample live in another country, state months, after that families for three quarters and then or municipality, the period leave the sample and return reinstate them for more for that people live in the pace of to the sample in the same 4 quarters, after which the residence), education months of the following year. households will leave the (literacy, education attain- So, we have panel data be- sample definitely. This will ment, private/public school, tween one year and the other. help produce some valuable type of course, current school panel data to analyze the grade, years of study), fertility Besides that, Brazil has three households. The survey re- (if the woman had a live birth, broad enterprise surveys. Two form will also transform the and how many live births, by of them are released by the POF into an annual survey. gender, she had; year, month Labor Ministry: the Employed There will be a five-year POF and sex of the last live birth and Unemployed General using the complete question- child; if she had a stillbirth; Register (CAGED), and the naire and four continuous and if some children died, Annual Relation of Social POFs between them, with a and how many children the Information (RAIS). These smaller questionnaire. Keep- woman had that is already follow registered Brazilian ing its non-longitudinal na- dead, by sex), and wealth of companies and registered ture. the household (access to workers. The third is released clean water, sewerage, gar- by IBGE: the Annual Industry The PNAD is the biggest bage, TV, fridge, cooker, Survey (PIA) which follows household survey in Brazil. It registered industrial compa- rooms). is an annual survey nies with more than 10 work- (September to August), and it The main characteristic of ers. is divided in two datasets, one POF is that the survey brings with personal characteristics (Continued on page 10) Page 10 1st Quarter 2010 H O U S E H O L D S U RV E Y S ... (CONTINUED FROM PAGE 9) CAGED and RAIS are adminis- excluding temporary workers). So, Brazil has amazing data of trative registers of the Labor Both are longitudinal. households and also of enter- Ministry that investigate infor- prises. The only weakness of "Still missing is a mation about workers (age, PIA-Company has followed, the household data is that schooling, gender, occupa- since 1996, all the compa- most of it is not longitudinal, survey that follows tion, income, type of contract, nies in the country that: have and even with the forthcom- nationality, time of service, National Register of Legal ing changes POF will continue households for a long admissions and layoffs), and Entities (CNPJ); are classified, to be non longitudinal and time. This would offer also about establishments by the Company Central Reg- PNAD will follow households (size, address, economic ac- istry of IBGE, as an industrial only for small period. Still numerous research tivity, legal nature). RAIS is company; and have five or missing is a survey that fol- annual and representative by more workers. It provides lows households for a long and policy- information about expendi- the country, states and mu- time. This would offer numer- development nicipalities. It covers 97% of ture on assets, people, raw ous research and policy- the Brazilian formal labor material, equipments, etc, development opportunities, opportunities" market. CAGED is monthly and about revenues. The sur- well worth the considerable and covers only 80% of the vey is longitudinal, and it has efforts needed to cover this labor market registered with also information about local vacuity under the CLT regime (i.e. plants. A DARK SIDE... (CONTINUED FROM PAGE 2) sion of the crisis to Brazil, then tors reinterpret existing infor- effects of this "wake-up call" why its volatility and co- mation which stimulates learn- hypothesis during the initial movement with US markets ing and awareness. For exam- stages of the crisis, before the seem relatively smaller than ple, in the current context, collapse of Lehman, but this other BRICs, as in figures 2 seeing that high levels of channel seem to have been and 3? The answer lies in the credit (in particular mortgage mute afterwards. During the other channels of crisis trans- lending) and indebtedness in early period of the crisis, coun- mission, to which we turn next, the US banking and corporate tries with more vulnerable that did not appear to have sectors were at the root of the banking and corporate sectors been as important for Brazil as crisis (and thus associated did indeed face greater link- "The `wake-up call' for the other BRICs. with large declines in US stock ages with the US market. Sur- channel does not For instance, the so called markets), investors might have prisingly, we do not find any reassessed the value of their role for macroeconomic funda- seem to have been a "wake-up call" story hypothe- portfolios in countries with mentals. sizes that greater co- similar fundamentals (leading significant source of movement between stock to declines in these countries However, the "wake-up call" markets could occur as inves- as well). We find significant channel does not seem to vulnerabilities for have been a significant source Brazil, as opposed to of vulnerabilities for Brazil, as opposed to the other BRICs the other BRICs" and ECA countries which seemed to have suffered from investors' learning effects. More specifically, the Brazilian banking sector was in rela- tively good shape. It appeared to have been the most healthy system in our sample (captured through the capital adequacy ratio), although its liquidity was not as high as in other countries. The level of private credit to GDP was also relatively small (at around 33% in 2006 versus 104% in (Continued on page 15) Quarterly Knowledge Report Page 11 TRADE WARS: THE BRAZIL-US COTTON DISPUTE By Mauro Azeredo damaging measures, in the case of the US this unfortu- P rofessor Renato Flôres is a reference in interna- tional trade in Brazil. He is a nately did not happen. Obviously, the WTO works under international public specialist appointed by the law and it is assumed that Government of Brazil to the the parts are in good faith, World Trade Organization and but the US has been using a world renowned expert in a number of artifices to applied general equilibrium avoid complying with the models. Flôres is affiliated WTO's ruling. In 2006 the with the Fundação Getúlio case was over and the US Vargas in Rio de Janeiro and sought the appeals body, a Visiting Professor at the losing again. Brazil already FGV's Renato Flôres: After eight years, Institut d'Etudes Politiques de had a right to retaliate. The Brazil was right to pressure the US. Paris - Sciences Po and the US then suggested that, Department of Economics of since the Doha round was the Technical University of active, the issues might be BET: Brazil's strategy to rely Lisbon, as well as a Scholar of resolved systemically. This on the good will of the US and the Instituut voor Beheer en gained them more time, until wait for a positive outcome Ontwikelling, University of 2008, because the "Lamy has correct? Antwerp. Package" could indeed have solved the dispute had it been Flôres: Yes. Brazil played fair In this interview to BET's approved. So Brazil trusted and consulted with the WTO Mauro Azeredo, Professor on everything, including the Flôres provides insights about the US and waited for another "No one is favorable two years. retaliation amounts. It is im- the significance of the ongo- portant to note that Brazil was to retaliations, but ing trade dispute between After the package floundered, able to keep the dispute in Brazil and the US, in which Brazil has full right to retaliate the economic arena through- they provide Brazil has moved to apply last resort trade and intellectual as the US maintains three out - there was no contamina- additional pressure to subsidies that had to be tion with political issues. This property retaliations. scrapped. One of them is a was treated as a normal trade reach a solution" subsidy expressly prohibited and economic dispute that [Editors note: Mr. Flôres gave by the WTO, that depends can happen between coun- this interview before a provi- only on an executive decision tries that have a big bilateral sional agreement between ­ that is, they chose not to trade volume. So Brazil han- Brazil and the US was an- scrap it. The other two subsi- dled this very well and having nounced in early April.] dies are actionable but were done so won all the rulings. BET: Could you explain what denounced, and now need This is an emblematic case Congress decisions. But there for our trade dispute history. is at stake in the dispute? was no movement from the Renato Flôres: Brazil's WTO US in this front. BET: Some analysts say that if dispute against the US on Brazil were to actuality imple- cotton subsidies began in Thus, retaliation comes in due ment the trade and intellec- September 2002 and, to- time, Brazil has been too pa- tual right sanctions this could gether with the sugar dispute tient. I should ad that retalia- be counterproductive. How against the EU, is regarded as tion is not a solution, though. big are the retaliation rights a very important initiative. No one is favorable to it at the and what could be the im- Both are based on the Subsi- onset, but in a situation like pacts on the Brazilian econ- dies and Compensatory Meas- this retaliation imposes itself. omy? ures Agreement, a complex It is an additional pressure so that the losing part works Flôres: The amount is not that accord that regulates prac- high. The WTO authorized a tices that can have an impact toward a solution. US$ 829 million retaliation, on commodity prices. BET: What have been your based on 2008 values. US$ Brazil won both disputes role in the dispute? 591 million in goods and US$ handily. But although we were 238 million in intellectual Flôres: In the case of the cot- rights. I do not believe that it able to reach the end of the ton dispute with the US I had dispute with the EU, and they will be counterproductive. We no direct involvement. suspended or removed the (Continued on page 12) Page 12 1st Quarter 2010 TRADE WARS... (CONTINUED FROM PAGE 11) do not know which intellectual who has earned the right to Flôres: At least psychologi- rights areas will be retaliated, retaliate waits before doing cally. This is a very technical there is some talk about the so. It is always better to find a area. One may ask how the pharmaceutical industry, but negotiated solution and the retaliation amounts are calcu- my personal feeling is that the other part may come up with lated ­ don't ask: there are brunt will be on the media a proposal in the last minute. applied general equilibrium area ­ thus there will not be Under this perspective, the models, including elasticity much of a loss for Brazil while issue has indeed a more sys- hypothesis, consumption re- the US will be hit harder. The tematic meaning: Brazil went traction, tariff revenues, etc. rationale to retaliations and ahead and retaliated against So we cannot say now if it will cross retaliations is that, if the US. And here I can see have a large or small impact. you do not get a compensa- some externality that may In any case, it will be a nui- tion in the disputed item or in eventually reach Doha: it sance for the US. The psycho- nearby areas, you can do so draws attention to the distor- logical and formal aspects are in another area, forcing the tive effects of agricultural important: a country that is other sectors to help you pres- subsidies, something that the being retaliated against is sure the cotton belt to solve US is not alone in doing. In seen as not playing by the the issue. I think that the au- this sense there could be an rules. It lost in a formal proce- dio and visual area is as sen- educational impact. dure and allowed the situa- sitive to the US tion to escalate to as the pharma- the point of receiv- ceutical area. ing a sanction. The reputation and "Some externalities BET: What is the credibility issues, relevance of as we say in game from the dispute may this dispute for theory, are very reach Doha. It draws the Doha round important. The and commercial material question attention to the relations be- can also be impor- tween the devel- distortive effects of oped and devel- tant ­ we'll see. Especially in the agricultural subsidies, oping coun- intellectual rights tries? area. No one will something that the US die over it but it Flôres: I believe is not alone in doing" that since the may irk many con- cerns. retaliation BET: So if Brazil settles for a against the US is high, some package of compensations BET: Have there been retalia- people are over-dimensioning that do not include actions in tions against Brazil in the its effects. This is a normal the cotton sector this could WTO in the recent past? procedure, that consolidates be seen as a defeat? and strengthens the WTO and Flôres: No, Brazil has never all its members, but it is emi- Flôres: I do not think so. The suffered retaliations. An inter- nently economic. For exam- sanctions are valid for a year esting story is our dispute ple: the US and Canada. We and if the US does not do with Canada over the aviation would be hard pressed to find anything, they can be re- industry ­ Embraer against a closer pair of nations. But newed again and again with Bombardier. Canada won the Canada also has the biggest corrected values, until the first round, and even won the number of trade disputes with problem is solved with the right to retaliate against us. the US, because their trade scraping of the offending sub- But it choose not to, because volume is huge and disputes sidies. However, if the US the situation was very compli- are unavoidable. So, first, this shows that it is willing to ad- cated and Brazil opened a is a normal and necessary vance or if it offers a very panel against them. Brazil procedure within the WTO so good compensation package, then won and earned the right that a solution to the disputes Brazil may close the case and to retaliate also. The two re- can be reached. I repeat, stop the retaliation. taliations had more or less retaliations do not solve the the same magnitude. Both issue, they are a pressure and BET: So the sanctions medi- remain as neither Canada nor compensation instrument. cine is bitter enough to rouse Brazil scraped the offending Second: normally, the part the US? (Continued on page 14) Quarterly Knowledge Report Page 13 R E M I T TA N C E S A N D D I S A S T E R R E L I E F : THE BRAZIL-HAITI EXPERIENCE By Mauro Azeredo banks to help the country. Among them, the opening M assimo Cirasino is Lead Financial Sector Spe- cialist in the Financial Sector of accounts to receive do- nations for some aid or- ganizations, like the Inter- Operations and Policy Depart- national Red Cross. ment (Payments System / Financial Sector Infrastruc- BET: What is the signifi- ture Unit). He leads many of cance of this waiver? the unit's country and regional interventions. Cirasino: There are no ex- act figures in terms of In particular, he is one of the amounts, but what we see two project managers of the as the most important Western Hemisphere Pay- factor is the signal of coop- ments and Securities Clear- eration and solidarity in a ance and Settlement Initiative moment so delicate and (WHI) where he is also a diag- dramatic. It is obvious that nostic study team leader and in similar circumstances the primary liaison between any kind of aid is welcome the World Bank and the Inter- and useful. Cirasino: Remittances were a fast and national Advisory Council of direct means to allow the quick restart- the Initiative. Massimo is the BET: What is the role of ing of the economic flows to Haiti. primary contact at the Bank remittances in context of "Under the Central for the assessment of pay- the disaster? Is there the danger of dependency and of solutions having a broader Bank's leadership, ments and securities settle- social impact. Institutionaliz- ment systems in the context investment disincentives? of the joint Bank-Fund Finan- ing such kind of dialogue and Brazilian Banks Cirasino: In this context, the approaches, through the crea- cial Sector Assessment Pro- most important role of remit- tion of specific fora and coun- immediately waived gram (FSAP). He gave this cils, should be one of the interview by e-mail to BET's tances is to assure that the remittances fees to people have access to funds priorities of every govern- Mauro Azeredo. ment. Haiti in the aftermath and liquidity allowing them to BET: Brazil was among the buy food, medicines and cover the basic needs of their BET: Have other countries of the disaster" first countries to waive remit- followed suit? Are there any tance fees to Haiti after the families. In addition, remit- tances are the faster and other outcomes of the Brazil/ earthquake. What was the more direct mean to allow the Bank remittance partnership? role of the Bank in this? quick restarting of the eco- Cirasino: A similar measure Massimo Cirasino: The World nomic flows. We do not be- has been adopted in the Do- Bank started coordinating the lieve that they can create minican Republic, where the major players in the area of dependency and investment banking sector has waived Payment Systems in the LAC disincentives, also in consid- the fees for all the transfers region immediately after the eration of the fact that remit- made to Haiti from or to ac- quake that hit Haiti. One of tances have always repre- counts held by aid organiza- the ideas proposed to the sented an important and con- tion in the country. Central Banks of the region stant resource of capitals for was that of waiving the fees Haiti. Investments generally BET: Should this be an emer- for the transfers of money to depend more on government gency measure only or should Haiti. The Banco Central do actions, and in the case of the countries permanently waive Brasil (BCB), based on the HIPC investments, they de- fees for Haiti (and other HIPC initiatives led by the WB, pro- pend mainly on foreign coop- countries)? posed the idea to the biggest eration. banks in Brazil and to the Cirasino: Such a measure National Banking Federation. BET: How can these private could have beneficial effect if The proposal was immediately operations be made to have a adopted permanently for the accepted and the BCB took broader social impact? HIPC. The question is to find a up charge of the coordination way to implement it without of the process. This action Cirasino: Cooperation be- distorting the market and adds itself to the initiatives tween the financial public and adopted individually by the private sectors could result in (Continued on page 14) Page 14 1st Quarter 2010 R E M I T TA N C E S ... (CONTINUED FROM PAGE 13) Brazil and the Domini- ever, any form of cooperation can Republic, expressed in the Payment Systems Area great appreciation and at regional level cannot but gratitude. They also have a beneficial impact in wished other countries reducing the cost of sending would join this effort. remittances in the region. In There is no data about this sense, the project of inte- the impact on the finan- gration of the national pay- cial sector, but it is rea- ment systems of the Central "Any form of payment sonable to assume that American and Dominican systems cooperation the impact has been Republic Monetary Council positive. could be an example of the at the regional level possible actions increasing without disrupting the private BET: What could Brazil do the efficiency of the remit- will have a beneficial sector business. more to help Haiti in the re- tances flows. The WB con- mittances area? Any south- stantly monitors and facilitate impact" BET: Are the legal, govern- south experiences to share? s the discussions on this ment and financial sector within the activities of the institutions in Haiti respond- Cirasino: Unfortunately, Brazil Western Hemisphere Pay- ing well? is not the main destination ments Initiative, created by country for Haitian émigrés, the WB and the Centro de Cirasino: The Central Bank of therefore the impact of this Estudios Monetarios Latino- Haiti, when informed about measure cannot be increased americanos the initiative undertaken by in an exponential way. How- TRADE WARS... (CONTINUED FROM PAGE 12) measures. But with this we not see concrete efforts from present a satisfactory pro- got a level playing field and the US to come up with any posal in the next six months. each of the countries keeps consistent replies in the next its retaliation card. And life sixty days, when the full re- A concrete measure such as went on as competition condi- taliations take effect. How- the retaliation may move the tions were equalized and both ever, once implemented, intellectual rights concerns in sides became satisfied. Thus, other factors can come into the US Congress to mobilize anything can happen. It is play ­ for instance, there is a and force the agricultural rare that retaliations are ap- new US ambassador coming caucus to take this seriously plied. Maybe this is why there in, and the US may be able to is such a commo- "Retaliations are tion over the issue rarely applied. Maybe BET: Do you think that the US may this is why there is make a good pro- such a commotion posal or will it seek to continue delay- over the episode" ing? Flôres: It is very hard to say. One may expect from the past that the US will continue to delay and that Brazil will have to implement both retaliations. At this point [editors note: mid March] I do Quarterly Knowledge Report Page 15 THE DARK SIDE... (CONTINUED FROM PAGE 10) South Africa, 43% on average in ECA countries, and 71% on average in our sample), sug- gesting a more limited role to credit shocks as well. The Brazilian corporate sector was not particularly vulnerable. Brazilian firms were not highly indebted or leveraged, al- though a large share of firms in the country had interest coverage ratio below one, indicating that they could have faced difficulties in meeting their interest payments with their cash flows (and thus were at a higher risk of de- faulting on their debt obliga- tions). ports were relevant to explain dark side of financial integra- stock market co-movements. tion and liquidity as more inte- Lastly, real linkages capture grated countries like Brazil basically two different trade In sum, evidences suggested seemed to have experienced effects: a competitiveness that main channel of transmis- greater co-movements with US effect ­ when changes in rela- tive prices affect a country's sion of the crisis to Brazil ap- markets. However, a priori, "More financially pears to have been financial. countries should not overreact ability to compete abroad ­ Both direct and indirect link- and turn their backs to finan- integrated countries and an income effect ­ when ages through the actions of cial integration and market like Brazil seem to the crisis reduces income and international investors liquidity. Rather, through ade- consequently import demand. Surprisingly, despite a sharp seemed to have played an quate regulation and supervi- have experienced important role. Other transmis- sion, they should try to man- collapse in trade flows glob- sion channels at work during age the potential exposures greater co-movements ally, this channel of transmis- this crisis, such as the "wake- that arise from having finan- with US markets" sion does not seem to have up call" effects, seem to have cially integrated and liquid been at work. Overall trade been less important to Brazil openness was not a key pre- markets than to other emerging mar- dictor of the country's re- kets. And surprisingly, despite sponse to the crisis. Trade * This note is based on the paper the large contraction in trade entitled "What Explains Stock composition did not seem to flows during the crisis period, matter either since neither the Markets' Vulnerability to the 2007 we find no evidence for a real -2008 Crisis?" which is co- ratio of fuel exports to total channel of crisis transmission. authored by Inessa Love (DECRG) exports nor the share of agri- and Maria Soledad Martinez-Peria cultural exports to total ex- These results highlight the (DECRG), World Bank Policy Re- search Working Paper No. 5224. 1. We analyze stock market data for the US and other 83 countries between July 2007 and April 2009. Country rankings are not substantially different in Figure 1 if we focus on the post-September 2008 period. 2. For each country, co-movement with the US is measured by the coefficient of a regression of monthly local stock returns (i.e., the percentage change in the stock market index) on US stock returns. 3. We follow a one-step approach in which each market's correlation vis-a-vis the US market is inter- acted with country-level character- istics. AS DIVERSE AS BRAZIL (CONTINUED FROM PAGE 1) effects of the current social policy and the challenges for the next government. On the external front, Brazil announced sanctions worth roughly $830 million a year on US goods and rights over Washington's failure to implement WTO rulings on cotton subsidies. Professor Renato Flôres of the prestigious Getúlio Vargas Foundation (FGV), a prominent expert in applied general equilibrium models and former WTO specialist, shares his insights about the relevance of this latest round of 8-year old trade dispute. The Quarterly also interviewed Massimo Cirasino, World Bank's Lead Financial Sector Specialist in the Operations and Policy Department, on Brazil's decision to embrace a Bank-led initiative The Quarterly Knowledge to waive remittances fees for Haiti in the aftermath of the earthquake. Report is a publication of the Brazil sailed through troubled waters of the recent global economic turmoil almost unscathed compared World Bank to other countries, but not so in the capital markets. Tatiana Didier compared the Brazilian experience with other emerging economies to find out about the main transmission channels of the economic shock in Brazil. The importance of logistics for growth and competitiveness is directly proportional to Brazil's continen- tal dimensions. While the country has advanced with the PAC and other initiatives, logistic still cost Brazil more than 15% of its GDP. Jorge Rebelo and Sivan Tamir use the main findings of recent country and global reports to propose possible paths for reform. Sign up to receive BET Still in the Custo Brasil field, procurement is often blamed for delays and less than optimal results in reports: public works. Luis Blancas, Alexandre Borges, Laura Chioda and Tito Cordella compare state experi- ences to understand if government implementation efficiency could benefit from the adoption of the so- betmail@worldbank.org called "phase inversion mechanism". Finally, Romero Rocha brings us up to speed on an exciting initiative to revamp several key economic Contacts: and social surveys in Brazil, in partnership with the Brazilian Institute of Statistics and Geography (IBGE), while maintaining their traditional high quality. Enjoy your reading! Tito Cordella Makhtar Diop Mauro Azeredo Brazil Country Director WB Link: 5761-1000 Ph.: +55 61 3329-1000 BET Publications IN THE LOOP BET Daily Report: the most Some of the quarter's noteworthy events important daily economic news and indicators about the Events Projects Approved Brazilian economy [internal]. Brazil Monthly Report: 5th World Urban Forum, March 22-26 Second Minas Gerais Partnership for Develop- updated information on Managing Director Juan José Daboub lead the ment (additional finance) - $461 million--support economic developments, Bank delegation, which showcased the new Minas Gerais's innovative and highly successful policy challenges, and urban strategy. State for Results public sector management pro- economic trends [internal]. International Teaching Hospital Seminar, gram. March 17-18 Rio de Janeiro Fiscal Sustainability, Human Devel- Quarterly Knowledge Report: information about our Eletrobrás Distribution Company International opment and Competitiveness DPL--$485 million-- analytical work and short Seminar, February 4 support Rio's efforts to improve education, health, knowledge pieces on policy III CONSAD Congress, March 15-16 fiscal management and the investment climate, relevant questions. helping offset the impact of the global slowdown. Brazil Brown Bag Series Pernambuco Sustainable Water--$190 million-- ---- CCTs and Supply of Education - An analy- assure universal access to safe water supply and sis of Bolsa Família, February 23--Anna The Quarterly, Monthly and sanitation services for the population of the one of Fruttero (LCSHS) and Phillippe Leite Daily Brazil reports are in the the driest states in Brazil. (HDNSP) Brazil Intranet: Inside the Mind of Brazilians, March 30-- Sustainable Cerrado Initiative (GEF), - $13 million http://go.worldbank.org/EX2K94 Alberto Carlos Almeida (bestselling Brazil- grant--guarantee the conservation of the most L7V0 ian author and social researcher) biodiverse savanna in the world, which covers nearly 25% of the Brazilian territory.