What could be better for Brazil than the publicity tied to the recently concluded Olympic games? Getting the nation’s fiscal house in order, as described by Peter Millard in the latest Bloomberg Businessweek.
Michel Temer, the provisional president who was sworn in after Dilma Rousseff was impeached on Aug. 31, is aiming to halt the interventionist economic policies and fiscal recklessness pursued by Rousseff’s Workers’ Party. His economic team has won praise on Wall Street for formulating policy less like disastrous Venezuela and more in line with the region’s emerging-market darlings, Chile and Colombia. In Argentina, President Mauricio Macri has gained investor confidence by unwinding regressive economic policies, including currency controls, providing a model for Temer and his advisers as they struggle to lift Brazil from a two-year recession, its deepest on record. …
… “There is a shift toward neoliberal policies again. It is happening all over Latin America, with the exception of Venezuela, maybe Ecuador,” says Carlos Langoni, a former central bank governor who’s director of the Center for World Economy at the Getulio Vargas Foundation in Rio de Janeiro. “It is no longer an ideological choice. It’s a pragmatic matter. The state is broken; there are no funds for the state to lead this new stage of growth.”
While restarting an economy through spending cuts sounds counterintuitive, Brazil is in no position to execute a stimulus package after years of operating in the red. Brazil’s debt as a share of GDP reached 69 percent in June, up from 52 percent in 2011, when Rousseff first took office. Generous social benefits put in place by Rousseff’s party brought millions of Brazilians out of poverty. They also stoked inflation and left government coffers bare when the economy went into a downturn. Now the government needs to limit spending. Otherwise, Brazil will face a debt crisis similar to Greece’s, according to Dyogo Oliveira, interim minister of planning, development, and management.
