decade. In some cases, notably in Chile and Colombia, this decline was caught up by a massive private investment compensating for the lack of public investments. Although private financing of infrastructure exists in Brazil, it has been very low (about 1 percent of GDP) and has never reached the scale of Chile and Colombia, 5.7 and 2.6 percent of GDP respectively.Why has Brazil faced so many difficulties to attract private investments in infrastructure? According to the World Bank (2007), "regardless of the indicator used, data show that returns on infrastructure concessions in Brazil have not been sufficient to compensate for the opportunity costs of capital." Low investment returns in infrastructure are closely related to relatively high and risky opportunity costs for business in Brazil. Faced with the risk of administrative expropriation by future governments, private investors have been discouraged from financing infrastructure projects.Because country risk has reduced since 2008, when Brazil was able to convince several credit ratings agencies to raise Brazilian debt to investment grade, the country can obtain significant gains. However, there are still concerns about the governance conditions of the regulatory environment of Brazilian regulators. There is evidence, for instance, that the government has systematically impounding agencies' budgets, which has tremendously threatened their autonomy and capacity to operate (Correa et al. 2006). Also, there has been excessive government interference on contract renegotiations revising tariffs and investment plans, which might be an indication of poorly designed concession contracts and the weakness of an independent regulator.Therefore, if the problem is an overburdened state, which has to tax, borrow and trim down other investments to maintain entitlements and other commitments, then which expenditures have such a constraining effect on the economy? Although there are several expenditures in this category, the one that stands out high above all others is outlays for social security and pensions. Practically one-third of the federal budget is devoted to these expenditures, whereas expenditures in investments were less than 6 percent in 2003. Pensions in Brazil since the 1988 constitution have been notably generous, especially in the civil service. A new group of non-contributing rural pensions was added, contributing to systematic deficits. With about 11.7 percent of GDP, Brazil has one of the highest social security expenditures in the world, especially considering that the Brazilian population is much younger than that of most countries with similar levels of expenditure.The equilibrium that emerges from these opposing forces is one in which economic growth and improvements in productivity are realized but at a pace and scope that are limited by the constraints created by political institutions. This is in many respects a remarkable outcome given the history of the Brazilian economy in the past several decades. Although elements that conspire against growth and productivity have always thrived, the necessary conditions for the virtuous aspects of the policymaking process to materialize are extremely demanding. The approach suggested here thus emphasizes those aspects of the political institutions and policymaking processes that have led to this net-positive equilibrium, though we temper this assessment with the recognition of the many distortions that mitigate what