For Otaviano Canuto, the growth in the number of poor people in 2017 reflects the PT government's mistakes and the country's long-term problemsThe recent increase in poverty in Brazil evidenced this week by data from the IBGE (Brazilian Institute of Geography and Statistics) cannot be attributed exclusively to the mistakes of one or another government, in the view of the former executive director of the World Bank, Otaviano Canuto.Data from the institute show that, in 2017, the total number of poor Brazilians increased by 2 million people, for a total of 54 million poor people, which is equivalent to 26.5% of the population."It is not possible to attribute exclusively to Lula, Dilma or Temer the responsibility for the structural problems that we have been going through, because they have existed for decades without adequate treatment", says Canuto, who has just left the World Bank, where he worked for more than one decade as director and vice president.He is starting a consulting firm for government and private clients and will also serve as a member of research centers such as the Brookings Institute in Washington.For Canuto, the numbers are a belated reflection of the severity of the economic crisis in 2015 and 2016, also generated by old problems in Brazil, such as the low productivity of the economy and the lack of quality of education.According to the parameters of the World Bank followed by the IBGE, those living on up to US$ 5.50 a day are poor, which represented R$ 406 a month last year, according to the research body.End of Recommended MaterialsIn an interview with BBC News Brasil, he says that he sees President Michel Temer's political inability to approve reforms, including the Social Security one, as one of the reasons why the recovery of the economy was slower than expected."Due to the exhaustion of political capital, the Temer government ended up dying prematurely," he says.Credit, CYNTHIA VANZELLA/BRAZIL FORUM 2017For Otaviano Canuto, the growth in the number of poor people in Brazil is a belated reflection of the severity of the economic crisis in 2015 and 2016, generated by wrong decisions by the government of Dilma Rousseff (2011 to April 2016)Although he shows some optimism about the intentions of the future government of Jair Bolsonaro, he criticizes the president-elect's hesitation in relation to changes in retirement and says that the quality of education "has nothing to do with 'Escola sem Partido'".Adaptation of the award-winning BBC podcast 'Things Fell Apart' by Jon Ronson.Whether or not poverty will continue to grow in 2019, he ponders, will depend on the government's ability to implement reforms that allow, among other changes, to make Brazil's economy more productive."The resumption of virtuous growth with poverty reduction will largely depend on improvements in the quality of education," he says.He confirms below the main excerpts of the interview.BBC News Brasil - What is your analysis of the strong increase in poverty in 2017 detected by the IBGE?Otaviano Canuto - As the depth of the recession of the recent period, mainly 2015 and 2016, was so great, it is not surprising (this increase in poverty in 2017).Anyone who has a minimal knowledge of economics and its relationship with social indicators could imagine that the bill for the bottom floor of the pyramid would come with a little delay, as it did.Mainly because the pace of recovery from 2017 onwards was very fragile, with no improvement in the outlook to make private agents invest.We made important advances in the microeconomic agenda, but almost nothing in terms of structural reforms, on the fiscal side.So, confidence is not recovered, and the macroeconomic performance itself remains tepid.'We made important advances in the microeconomic agenda, but almost nothing in the structural reforms, on the fiscal side.So, confidence is not recovered, and the macroeconomic performance itself remains lukewarm', says CanutoThe impact on the bottom layer goes in stages, poverty feeds back either downwards or upwards.As consumption of the poorest population shrinks, which shrinks that dynamism at the base of the pyramid that we have seen at some points in the new millennium, the secondary effects of this loss at the base of the pyramid on the other poor appear some time later.In this sense, poverty has fed itself downwards.So, the direction of the fall was not surprising, and the intensity in a way reflected the depth of the crisis that happened in 2015/2016.BBC News Brazil - The PT government is often associated with poverty reduction.Is the Dilma Rousseff administration to blame for this result?Canuto - The Dilma government's fault, blamed on macroeconomic mismanagement before the period of attempted adjustment in 2015, was on account of trying to repeat policies that had already completely exhausted their ability to produce results.Let me explain: the fall in poverty during the Lula period, especially Lula 1 (first term), occurred due to the evident reinforcement of social policies, with the unification and expansion of Bolsa Família, but also as a reflection of an aggressive policy of increasing the minimum wage in real terms (higher than inflation), even above GDP per capita growth.This worked at the beginning, when there was a very large portion of the population outside the labor market and, in the first years of the PT government, it ended up creating a virtuous circle of increased popular consumption, increased employment, etc.The problem is that this formula had a limited life, because, after a certain point, the rise in real wages above the growth rate of GDP per capita begins to generate higher (production) costs at the margin.There, the costs of industrial production start to rise much more than would be bearable and the rate of private investment in the economy falls.So, continuing with the dose (of real increases in the minimum wage) would no longer give the same result.Credit, CYNTHIA VANZELLA/DISCLOSURE BRAZIL FORUM UK'When Dilma tries to implement an adjustment program in 2015, not only on the fiscal side, but also on the side of correcting prices that were dammed up, such as gasoline and energy, it deepens the degree of recession', says Canuto.However, what the government does, especially Dilma 1, is trying to repeat the dose.The Dilma government tried to get around this problem by creating public debt, transferring resources via public debt to finance private investment.As private investment no longer offered the minimum possibilities of suitable returns, what the private sector did was simply use the benefit of the public subsidy to exchange debts (expensive for cheaper ones), but not invest.The result of the attempt to repeat the Lula administration's dose ended up being just fiscal deterioration.When Dilma tries to implement an adjustment program in 2015, not only on the fiscal side, but also on the side of correcting prices that were dammed up, such as gasoline and energy, it deepens the degree of recession.BBC News Brazil - The NGO Oxfam says in a report that the adoption of the spending cap generates more poverty.Has there been any failure in this regard by the current government?Canuto - Oxfam's conclusion is biased, because it draws a result from the expenditure ceiling that cannot be ascertained simply by the existence of the ceiling.How this adjustment will be obtained will define the social impact.There is no place in the spending ceiling (establishing) that will be obeyed with a cut in Bolsa Família, or with cuts in public spending with social impact.It will depend on whether, for example, we have a social security reform that restricts the evolution of the benefits of the portion that today are very beneficiaries, if we will have rules for public sector salary adjustments to combat privileges.This is not defined.Oxfam document highlights that economic crises tend to hit the poorest hardestAs the old English proverb says, the proof of the pudding is in the eating.What will the new government do to meet the ceiling?There has been room in the last two years for this spending ceiling to be reached without great demand.Now it's time to eat pudding.BBC News Brazil - Was there anything Temer could have done to minimize the increase in poverty?Canuto - The current administration has advanced in areas such as microeconomic reforms that make life easier for employers and companies, but in the macro reform, on the fiscal issue, it stopped, it was halfway.The approval of the spending cap without a corresponding continuity in the review of public spending to allow compliance with the cap without cuts in sensitive areas ended up keeping infrastructure investment low.And, therefore, the recovery in the level of employment and GDP growth remained fragile.Due to the exhaustion of political capital, the Temer government ended up dying prematurely.BBC News Brasil - In your opinion, are the figures released by the IBGE more the fault of the Dilma government than the Temer government?Canuto - They are more to blame for the depth of the crisis.Although there is a temptation to establish a direct link between the government on duty, with a time lag or not, and the economic result, there are other structural problems present in the Brazilian economy.They, unfortunately, went undercover in that period of bonanza, when everything seemed to be going well.Therefore, it is not possible to attribute exclusively to Lula, Dilma or Temer the responsibility for structural problems that have existed for decades without adequate treatment.BBC News Brasil - And what are your expectations ahead?Will poverty and income inequality fall again?Canuto - It will depend on the government's ability to implement a set of structural reforms that allow not only to address the fiscal weakness that we have today, but mainly to increase productivity (of the economy).That expansion boom in the first decade of the new millennium was partly because productivity in the country went up, as we had people coming from outside the labor market into the labor market.This also had an effect on the initial moments of the demographic bonus (when the percentage of the population of working age increases).The problem is that this source is over, we now move on to the moment of a demographic liability (when the retired share increases).So, more than ever we need productivity increases that occur along the pyramid as a whole.'It is not possible to attribute exclusively to Lula, Dilma or Temer the responsibility for the structural problems that we have been going through because they have existed for decades without adequate treatment', believes the economistThe resumption of virtuous growth with poverty reduction will largely depend on improvements in the quality of education.The lack of infrastructure has a very strong impact on poverty as well.Locomotion in large and medium-sized cities has a great impact on those who most depend on this transport, the cost of products transported across the country directly affects the purchasing power of the poorest part of the population.So a strong contribution from this government will be, if it manages to attack these fronts.Being able to ensure that social security spending does not have this bias in favor of upper middle classes.If the government moves forward on this, it will be a great resource (against poverty).Another thing that can be done and that I like to hear from the economic team, through the media, is a growing reference to the evaluation of public policies.Bolsa Família is a program that has already undergone many evaluations and cost/benefit calculations and has passed all these tests.However, there are other Brazilian public expenditures classified as social that nobody knows if they actually have the expected results.BBC News Brasil - Is there rhetorical exaggeration in Bolsonaro's statements that there are frauds in Bolsa Família?Canuto - The World Bank worked with the Brazilian government to establish a verification methodology.Resource usage rates for non-extremely poor tiers were something like 5% of the total, which is, by any realistic standard, a very high effectiveness rate.You're not going to reduce it to zero, that shouldn't be the objective, but to prevent it from rising.Now, I understand, from a rhetorical point of view, the commitment to maintain this effectiveness.And I understand mainly as a desire, correct in my opinion, that the focus cannot be exclusively on (income) transfers, but to create mechanisms that make it possible to get out of extreme poverty in the future, which is the most correct thing to do.It is necessary to take into account that the great potential effects of this assistance will be felt by the children of the (first) generations (to receive the Bolsa Família), as they are obliged to be in school, to have health monitoring.Complementing this (must come) with access to better schools, a business environment that allows entrepreneurial activity to flourish, including people from this stratum of the population, and so on.And I see much more of a reference (in Bolsonaro's speeches) of working out solutions so that this assistance dimension of the government is not left alone.BBC News Brazil - You mentioned the importance of education in this process.How do you see the choice of Ricardo Vélez Rodríguez for Minister of Education?Canuto - I'm not going to make an analysis based on people's names, or cultural or philosophical preferences, this is of minor importance.What matters is the extent to which the education reforms sought address this structural problem of low quality education.Brazil has successful experiences and it is necessary to study how to generalize them, how to transform them into broader policies.Ceará's success is undeniable.To what extent can what was done in Ceará be adapted and extended to the rest of the country?That's the agenda.And, therefore, this has nothing to do with "school without a party" and "school with a party", I don't think this is essential in terms of improving the quality of education.BBC News Brazil - Do you see Bolsonaro's commitment to reducing poverty and income inequality?Canuto - I'm not guided by these labels.When you do the math, in the PT government there was more transfer of resources to the top of the pyramid than to the bottom of the pyramid, via subsidies (to certain sectors) and the frustrated attempt to make the country grow by force.Credit, Fabio Rodrigues Pozzebom/Agência BrasilThe economist expresses some optimism about the intentions of the future government, of Jair Bolsonaro, but criticizes the hesitation with the changes in retirement and says that the quality of education 'has nothing to do with 'school without a party''So, the idea of ​​associating a government with the desire to be more social or less social, this for me is a label that has little meaning in relation to the concrete result of the adopted policies.If, in the Bolsonaro period, structural reforms are successful in broadly raising productivity, in reconfiguring public spending, the result of this poverty reduction will be automatic, regardless of statements like this or like that.BBC News Brazil - Social inequality remains very high in Brazil.Should the next government adopt a tax reform that makes the system more progressive?Canute - This is an obvious makeover item.The tax framework that we have today is inefficient, introduces brutal distortions in taxation between products, introduces waste, because its complexity makes people and companies spend enormous human resources just to fulfill the tax function, and it is also the enemy of poverty and inequality, as our tax system concentrates income.So if the next government is successful in being able to negotiate the tax reform that can do that (change these problems), it's already a huge contribution.BBC News Brazil - Paulo Guedes defends a single income tax rate and Bolsonaro is against taxing dividends distributed by companies.Canuto - On the other hand, during the campaign, I saw all the candidates praising the proposal (to unify and simplify taxes) that was developed by my friend and former colleague Bernardo Appy.This in itself will reduce a brutal distortion, it will reduce waste with the fulfillment of the tax task, it will allow the closing of holes through which many people at the top of the pyramid manage not to pay tax.Have you watched our new videos on YouTube?Subscribe to our channel!© 2022 BBC.The BBC is not responsible for the content of external websites.Read about our policy regarding external links.