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Brazil: a tale of two cities

eep in the Ama zon jun gle , there ’s Altamira , a sparsel y
populated municipality, bigger than most U.S.
states, covered with rainforest and Indian reservations.
Nearly 2,000 kilometres away sits Diadema; a
densely packed, low-rent sprawl in the grimy industrial
belt around São Paulo, the largest metropolitan
area in the southern hemisphere. Uniting them both is the challenge
facing Brazil’s local leaders, how to improve living
standards in a decentralized, three-tier federal system in which
the balance between resources and obligations can often seem
Altamira, which covers 159,700 square kilometres, cuts a
swath through the south-east Amazon in the state of Pará. It is
by far the largest of Brazil’s 5,560 municipal districts – local officials
like to claim the world record – although the population of
100,000 is dwarfed by 14 Brazilian municipalities with one million
or more people. Although Altamira is mainly rural, its
population is heavily concentrated in the municipal seat, where
jobs are scarce.
“Our biggest challenge is the lack of work,” Deputy Mayor
Silveiro Albano Fernandes said in an interview. The scarcity of
employment is caused by a primitive, undeveloped economy
that has a low tax base, generating insufficient revenues to
spend on a better infrastructure and education, which could
help attract investment and generate jobs. “We do what we can,
but there’s simply not enough to go around; if we build one
school, we can’t repair another,” Fernandes said.
Municipal transport by plane
The daunting size of the municipality of Altamira compounds
the problem. Mayor Odileida Sampaio was away visiting an
outlying district, Fernandes said in the interview, and would be
gone for several days. Parts of her turf lie three hours away by
single-engine plane, with the flights mostly skimming virgin
forest. The alternative is a circuitous, 1,400-kilometre expedition
along mainly earth roads wending through eight
neighbouring municipalities.
“A municipality is easier and cheaper to administer if it’s
smaller with a higher concentration of people, rather than various
remote rural communities,” Fernandes said. “If we need to
build a health centre, for example, we have to provide one for a
community of maybe 1,000 people or less. But it could serve
The federal constitution determines that Brazil’s local governments
can raise taxes themselves, mainly on property and
services, but they also receive shares of a host of other revenues
from the federal and state spheres. Economists José Roberto
Brazil: a tale of two cities
bra z il
Districts have same powers, but face radically different challenges
Brian Nicholson of São Paulo is a British economic journalist who
has lived in Brazil for 30 years.
FEBRU ARY | MARCH 2008 Federations
A slum fronts on the Hilton Hotel in Sao Paulo. Brazil’s cities generate wealth, but not enough revenue to meet the needs of their residents.
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REUTERS/Caetan o Barrei ra
Afonso and Erika Amorim Araujo wrote in the World Bank’s
2006 book Local Governance in Developing Countries that
Brazilian municipalities raised 5.5 per cent of all taxes in the
country, but ended up spending 17.1 per cent, thanks to transfers.
In 2005, local governments raised US$17.1 billion and spent
US$52.8 billion– an average of US$9.5 million per mayor.
Current dollar values are probably 40 to 50 per cent higher
because of economic growth, increased tax revenue and,
mainly, a stronger local currency.
Altamira, with a budget of about US$32 million this year,
more than 90 per cent of it from federal and state governments,
is ahead of the pack. The lion’s share of transfers is related to
population size, and Altamira has three times the national average.
But the huge distances create problems that are only partly
compensated for by the smaller adjustments made to some
transfers to help compensate for the vast land area. Overall,
Fernandes said, it’s a bad business being big.
Ban on dividing municipalities
The obvious solution is to split up into several smaller municipalities,
initially probably three or four. Local officials have
been planning such a move for some time. But in 1997, the
Federal Congress placed a 10-year freeze on all municipal subdivision
Until 1988, municipalities were created by, and in many ways
subordinated to, state governments, which now number 26,
plus the Federal District. In 1988, a new federal constitution,
introduced after the end of the military dictatorship, gave
municipalities independent status and made their creation a
matter for local plebiscites. Their number rose dramatically,
increasing by 24 per cent since 1990. In many cases, the new
administrative units lacked viable size and reflected more a
desire by local political leaders to expand their power bases.
The net result was a diversion of public resources into legislative
and administrative structures, “at the expense of more
productive spending on, for instance, social programs and
urban infrastructure,” according to a World Bank report. The
moratorium prevents Altamira from resolving part of its problem,
but the deputy mayor said its leaders hope to move ahead
with subdivision by 2009.
Another source of constant irritation is land use. Fernandes
estimates about two-thirds of the municipality is taken up with
various kinds of reserves, including Indian reservations,
national forests and environmental reserves. Most come under
federal jurisdiction while others are state-controlled. Either
way, it’s municipal territory over which the local authority has
no control.
“Two or three years ago, the state government produced an
economic and ecological zoning plan for the whole state, telling
us what could happen in each area; for example arable
agriculture, pasture, preservation and so on. But we were hardly
consulted. Things like that tend to come down from top to bottom,
in final form,” Fernandes said.
Compounding the problem is that many rural properties
have unreliable title deeds. “Some people have been occupying
an area for 15 or 20 years, and still can’t get good documents,” he
said. Often the solution lies in state or federal hands, depending
on where the contested land might be. But as long as such
questions are unresolved, the loss is municipal, because without
proper title deeds, the land owner cannot get authorization
for development projects. For example, sustainable exploitation
of timber could create jobs and boost the local economy.
From forests to factories
More than 2,000 kilometres to the south, Mayor José de Filippi
Jr. has basically the same constitutional and legal instruments
to handle what is in many ways a different situation. Just 50
years ago, Diadema was a quiet town of 8,000 people about 16
kilometres southwest of the city of São Paulo. But Diadema
missed out on the huge post-war investments that brought
General Motors, Ford and Volkswagen to better-located areas
nearby, and consequently failed to form a prosperous middle
class. Today, its 390,000 mainly poor inhabitants are packed
into 30.7 square kilometres of urban sprawl within the seemingly
endless industrial hinterland of Greater São Paulo.
When Brazil opened its economy to foreign competition in
1990, this sparked a large exodus of traditional industry from
the São Paulo metropolitan region to lower-cost locations
[Continued on pa ge 21 ]
FEBRU ARY | MARCH 2008 Federations
Brazil: another view of the
two cities
By Fernan do Re zen de
It may seem at first glance that Altamira – in the Amazon basin
– has a bad deal in comparison to urban Diadema, but the
actual situation is not quite as simple as that.
The economic problems that Altamira faces – environmental
barriers that keep it from exploiting its natural resources and a
lack of jobs – are beyond the scope of the local administrators’
responsibilities. Altamira’s problems will not be solved by lifting
the ban on dividing large rural municipalities.
On the other hand, Diadema benefited from the dispersion of
the manufacturing industry around different parts of the São
Paulo Metropolitan area. Getting a share of industrial plants
helped to boost its finances and therefore to improve living
conditions in the city.
The finances of large rural municipalities and small metropolitan
ones respond to very different factors. Rural
municipalities depend heavily on federal transfers and small
cities depend on their share of their states’ value added tax.
Would Altamira be better off if its urban core could secede
from the vast rural hinterland? In my opinion, no.
The suggestion by Altamira administrators that “the obvious
solution is to split into several smaller municipalities” simply
exports Altamira’s problem from the city centre to rural areas,
which could end up worse off than before.
What Altamira really needs is a better coordination of federal,
state and local policies to increase its prospects for
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Fernando Rezende is a Professor at the Brazilian School of Public
Administration of the Getulio Vargas Foundation.
FEBRU ARY | MARCH 2008 Federations
Bra zil – [From pa ge 14]
within the state, or out of it. Diadema, the “ugly duckling” of the
industrial south side, perhaps had less to lose, but it also had
less to fight with. At the same time, starting in the mid-1990s,
mayors faced severe budgetary constraints under a public-sector
squeeze imposed by the federal government to end
hyperinflation that had plagued Brazil since the mid-1980s.
“Cities faced new challenges, partly because of the new reality
of the Brazilian economy, but also because of the new world
economic order,” the mayor said. “We had to start fighting for
economic development within the context of globalization that
was more and more hostile, more and more competitive.” That
meant working more efficiently, reducing costs and creating
attractive conditions for new investment.
Escaping urban decay
Using a special team of policy advisers, Filippi – mayor in 1993-
96 and again in 2001-08 – has managed to escape the
low-revenue, low-investment trap, boosting tax revenue and
spending the new funds in ways that attract further investment.
Industrial output rose seven per cent in 2006 and another four
per cent in 2007, after falling for eight straight years. The municipal
budget is up 70 per cent in real terms from 2001, to a
projected 2008 level of about US$270 million. His key measures
• Urban violence: In 1999, the municipality had the highest
murder rate of the São Paulo metro region, at 109 per
100,000 population. The murder rate fell 59 per cent, thanks
to a 2002 decree forcing all bars to close at 11 p.m. – a measure
that sparked widespread interest in other cities.
• Urban development: Diadema built three large flood control
reservoirs to catch water from heavy rains. This allowed
development of low-lying areas, one of which attracted a
major industrial investor who is now the city’s largest single
• Urban renewal: New sidewalks, public lighting, street repair,
litter bins, park benches and flower beds help create a more
pleasant environment, which in turn becomes a safer environment,
including for investors. “We make small
revolutions – three years ago, one neighbourhood had 40
small commercial establishments, now it has 250. That’s a
lot of investment in small business, shops and services, and
consequently a bigger tax base. This is a direct consequence
of urban renewal,” the mayor said.
• Creative incentives: Diadema shunned simple tax breaks,
but offered reduced land taxes for investors who increased
payments of other taxes.
• Social spending: Infant mortality declined to 12.9 per 1,000
births in 2006 from 85 in 1983 – improving from double the
state average to slightly better than average.
“The best investment any mayor can make is in social programs,”
Filippi said. In Diadema, innovation by municipal
leaders has made real improvements. For rural municipalities
like Altamira to make comparable gains, a stronger role for local
municipalities in joint planning with the state and federal governments
could allow such local innovations to begin.
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