Financial Development, Growth and Equity in Brazil
Regis Bonelli o
Financial markets help to foster growth and productivity through their role inmobilizing savings to finance investment and production, selecting and monitoringinvestment projects, diversifying risks, and allowing investment and production to becarried out in the most productive scale and time frame. This paper examines the linksbetween financial development, growth and equity. The focus is on the Brazilian case,but we also aim at contributing to a broader discussion on the role of financial marketsin fostering economic development in Latin America. The analysis discusses: a) Brazil?srecent growth record, which resembles Latin America?s average regarding pace andsources of growth; b) recent changes in financial intermediation in the region, stressingthe role of the public sector in absorbing private savings; c) the interface betweengrowth and finance; d) the issue of access to financial services; and e) the impedimentsto financial deepening and inclusion drawn from the Brazilian experience.Among its conclusions we highlight the relatively small contribution the Brazilianfinancial system has had towards promoting growth and equity in the followingsequence: a) the incomplete macroeconomic adjustment of the economy, which lead tohigh interest rates, market volatility, and a preference of savers for liquid, short-termfinancial investments; b) the high tax burden and the associated high degree ofinformality and fiddling with company accounts, which lower the quality of theinformation disclosed to financial institutions and capital markets; c) the central role ofthe state in mobilizing and allocating savings, largely an inheritance of the pre-1990sdevelopment model, which dampens the impact of financial intermediation on capitalproductivity; and d ) the low protection of minority shareholders and especiallycreditors against expropriation by the state and private parties create a highly uncertainand risky environment that raises the cost of capital, discourages financialintermediation and raises the preference for short-term and liquid financial assets.
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