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Arbache — Foto: Getty Images Arbache — Foto: Getty Images
Brazil’s economic debate has once again gravitated around two words that seem sufficient to organize a forward-looking agenda: adjustment and reforms. This impulse is understandable given a demanding fiscal environment, high interest rates, and investment still below what is needed. But Brazil’s past experience calls for caution. The country has already been down this road. In the 1990s, it stabilized, opened up, privatized, and liberalized, yet it still failed to deliver the sustained growth that had been expected. The lesson is not that reforms do not work. It is that they do not work in isolation, nor automatically. Growth depends on something more demanding: coherence between macroeconomics, productive structure, international integration, and institutional coordination.
The central issue in today’s debate is that Brazil faces challenges similar to those of the past, but in a completely different structural context. Back then, the task was to dismantle a closed, inflationary, and uncompetitive economy. Today, the challenge is to reposition the country in a world that is rapidly reorganizing under the pressures of the energy transition, geopolitical fragmentation, and the reconfiguration of global value chains. This new environment is not only more uncertain; it is also more strategic. Countries and firms are no longer seeking efficiency alone, but also energy security, resilience, and access to critical assets. And this is precisely where Brazil stands out.
The country brings together a rare set of comparative advantages that, in the current global context, are becoming dynamic competitive advantages. Abundant and relatively cheap renewable energy, a sophisticated agro-industrial base, unique biodiversity, water availability, strong biofuels capacity, potential in nature-based solutions, and significant reserves of critical minerals place Brazil in a privileged position. The world will need more sustainable food, low-carbon fuels, high-integrity carbon credits, nature-based solutions for adaptation and mitigation, and mineral inputs to enable the energy transition, such as lithium, copper, nickel, graphite, and rare earths. Few countries can combine these elements at scale. Brazil can.
But potential does not translate into growth by inertia. The experience of the 1990s is clear: microeconomic efficiency gains do not automatically translate into macroeconomic dynamism. At that time, the combination of stabilization through an overvalued exchange rate, rapid trade liberalization, and lack of macro-micro coordination undermined the competitiveness of tradable sectors, increased external vulnerability, and constrained investment. The lesson is that relative prices matter, sequencing matters, and coordination matters. Today, the risk is not repeating the same mistakes exactly, but rather ignoring these lessons under new circumstances.
The key difference now is that Brazil is no longer starting from a defensive agenda of correcting distortions, but from an offensive growth agenda. Powershoring, in this context, is not just a concept but a strategy for international integration. It involves attracting and developing value chains that are intensive in energy and natural resources in a low-carbon environment, leveraging the relative abundance of these factors. This includes everything from green steel and low-carbon aluminum to fertilizers, green chemicals, sustainable aviation and maritime fuels, hydrogen and its derivatives, as well as electro-intensive manufacturing. Added to this are opportunities linked to the bioeconomy, biofuels, and nature-based solutions, which can transform environmental assets into flows of income, investment, and exports.
This is, potentially, the country’s major economic agenda. But it requires a shift in approach. It is not about choosing between the state and the market, but about understanding the role of the state as a coordinator and enabler of investment. This means directing scarce public resources toward areas with high potential economic returns and strong international integration, reducing risks, unlocking bottlenecks, and catalyzing private investment. Energy and logistics infrastructure, transmission, ports, long-term financing, risk mitigation instruments, clear and predictable regulatory frameworks, efficient licensing, and human capital formation are all central elements of this agenda. The state does not replace the market; it organizes it.
In this context, fiscal adjustment remains indispensable, but its nature must be properly understood. Brazil cannot wait to grow before adjusting its public accounts, nor can it adjust while ignoring growth. Fiscal consolidation will need to occur simultaneously with the construction of a growth strategy. This implies prioritization. Rather than dispersing resources, it will be necessary to concentrate them in projects and sectors capable of raising potential output, increasing exports, reducing external vulnerabilities, and attracting capital. A credible fiscal adjustment, combined with a clear growth strategy, can reduce risk premia, lower the cost of capital, and accelerate investment. Without this combination, adjustment tends to be more costly and less effective.
Coordination between macro and microeconomics, therefore, is not a technical detail but the core of the strategy. Exchange rate policy, cost of capital, taxation, regulation, and industrial policy must all point in the same direction. This is not about repeating past policies, but about avoiding their inconsistencies. Trade liberalization, for example, should be designed in light of integration into strategic global value chains, not as an end in itself. Industrial policy should be selective and guided by dynamic comparative advantages, rather than diffuse protection. And macroeconomic policy must ensure stability without undermining competitiveness.
Brazil now has a rare opportunity. The world is simultaneously seeking decarbonization, energy security, diversification of value chains, and nature-based solutions. Few countries can deliver all of this at scale. But historic opportunities do not materialize automatically. They require vision, coordination, and execution capacity. The lesson from the past is clear: reforms are not enough. The task now is more demanding—and more promising. It is about knowing how to use reforms, fiscal adjustment, and the country’s natural assets to build a new growth model, aligned with global transformations and Brazil’s comparative advantages.
Jorge Arbache is a professor of economics at the University of Brasília and a senior fellow at the Climate and Society Institute and Dom Cabral Foundation.
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