July 22, 2003

What's Going on in Brazil?

The Economist is relatively optimistic about President da Silva's chances for making his term a big success:

Economist.com | Country Briefings: Brazil: Brazil's president, Luiz Inácio Lula da Silva, remains popular, but his Workers Party (PT) government is beginning to face policy challenges that could bring his honeymoon period to an end. The biggest task is an overhaul of the public-sector pensions system, which the president hopes to reform in order to shore up the progress made on stabilising the country's finances. Though strikers on the streets and old-guard leftists within the PT hope to stymie the pension reforms, Mr da Silva's popularity, and the tacit agreements with opposition parties to support the reform bill, give it a good chance of passing without too many crippling compromises. Interest rates, currently sky-high, are expected to fall over the rest of 2003, as decelerating inflation gives the central bank room to cut rates. The Economist Intelligence Unit expects consumer prices to rise by 12.2% in 2003 and 6.8% 2004.... Though strikers opposed to the pension-reform plan promised to shut down Brasilia, they failed to do so--the government estimated that around 30% of federal civil servants had stayed away from work, while the strikers said 40-50% stayed home.... Consumer prices fell 0.15% in June, the first monthly drop since 1998. The central bank is expected to cut the key Selic interest rate by one percentage point on July 23rd, and investors expect rates to fall to 21% by the end of 2003.... The central bank has lowered its expectation of GDP growth in 2003 to 1.5%...

Posted by DeLong at July 22, 2003 08:16 PM | TrackBack


I actually thought the Economist outlook slightly pessimistic.

Another thing: I hardly can stomach the press corps surprise with Lula's "responsible economic policies" - after all, Brazil's fiscal woes were built by right-of-center governments.

If there is something really surprising, that would be a right-of-center president, with a political past linked to the military governments of the seventies, elected by the Northeastern clientelistic machine, implementing a responsible fiscal policy. That would be an aberration.

Posted by: econBras on July 23, 2003 07:07 AM

Agreed. The Economist is really hoping Lula will be right-of-center. The model for the Economist is never successful Asian economies, rather an open market system that makes no demands on more wealthy trade partners. China and Singapore make such demands. Brazil akes such demands for AIDS drugs, and I hope much much more. Vive!

Posted by: emma on July 23, 2003 09:58 AM

Isn't it deja vu all over again? The Economist and economic liberals applaud an emerging-market economy because inflation is under check, but all that means is that interest rates are sky-high (*lowered* today to 24.5%) and choking the economy. Unemployment is up at 13%, a 20 month high. Basically Brazilians are getting poorer. Eventually, after the economy implodes, the Economist will explain that the collapse was foreseeable and the fault of not being liberal enough. And so on to the next crisis.

Posted by: Andrew Boucher on July 23, 2003 01:35 PM

Inflation is not the issue for Brazil, Brazil's problem is exploding debt dynamics. For that problem, there is only one solution, which is to increase the savings of the public sector.

Lula knows that, the man on the street in Brazil knows that, even my dog knows that. The only thing that botters me is that the Economist and perhaps Brad assume that Brazil would have more prudent fiscal policy if governed by a right-of-center party, which is as close to reality as now in Rio de Janeiro.

Posted by: ecoBras on July 23, 2003 07:36 PM
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