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Brazil’s Economic Debacle
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This is what The Economist magazine did not say in its simplistic and reductionist report. In one of many interviews, Oscar-winning producer Brian Grazer said that a person must “know the weeds, to have lived in them”. Grazer meant that a person wouldn’t want to get involved in something which he had not enough knowledge about. Even though Grazer was explaining his view as to how to become a delegator, his comment also helps explain the poor job done by The Economist in its recent article titled Brazil’s Fall. The report, which by the way has no byline, starts by stating the obvious: what Brazil is as supposed to what it should have been at the start of 2016. In the following paragraphs, the writer limits his thoughts to reminding the readers about nightmares past, such as the downgrades issued by Fitch, after which Brazil’s rating as a debtor nation was degraded to junk status. Later, the piece attempts to explain why Brazil is where it is today using irrelevant measurements. “Ms Rousseff and her left-wing Workers’ Party (PT) have made a bad situation much worse.” The argument is based on the reductionist and simplistic premise that the current crisis is Rousseff’s fault because her administration mismanaged public funds in times of bonanza. “She spent extravagantly and unwisely on higher pensions and unproductive tax breaks for favored industries.” The article then cites the fiscal deficit as having swelled from 2% of GDP in 2010 to 10% in 2015, public debt now accounting for 70% of GDP and inflation being at 10.5% as three of the most important problems for the country of 200 million people. To these points, someone who actually lives in Brazil and who deals with the Brazilian way of life on a daily basis, has to say that the author never lived in the weeds. Most likely, he never even got to see the weeds. Brazil’s economic debacle does not stem from tax breaks given to industry. It originated in part from the bloated size of a State that sucks the people dry with continuous tax hikes on energy, food, public services and security, without delivering as expected. By the way, one of the recommendations of the article published by The Economist is to raise more taxes to solve the deficit problem. Go figure! Brazil spending unwisely was not the origin of the fiscal problem either. The country has been spending extravagantly for over 20 years. Luiz Inacio Lula da Silva, Rousseff’s godfather, spent beyond all expectations in growing his party’s voting base with sterile welfare programs that only guaranteed more central government bloating and more social dependence. Think of Lula‘s spending in the same way as Obama’s leaving the southern border open so millions of Latin American and Middle Eastern illegal immigrants pour into the United States. These illegals will become the Democratic Party’s voting base, which ensures that more democrats will be elected for office in the upcoming elections. Brazil’s first grave problem stems from the fact that its GDP is constantly assaulted by an ever growing State that spends over 90 percent of its money in maintaining the public bribery system which was created by the political class to sustain the bureaucratic mob that has controlled the nation since the military regime yielded power in the late 1980s. At least 90 percent of spending by the Brazilian government corresponds to ‘untouchable expenses’ that feed the jeitinho brasileiro, of doing business. No single plan to cut expenses presented by Rousseff, Aécio Neves or anyone else ever mentions cutting down expenses from the bribery system, which is the opium that incentivizes corruption schemes such as that of the oil giant Petrobras, a scandal that divested billions in public funds to pay for political favors to members of all political parties. According to the World Bank, Brazil’s GDP growth rate has never been too high. It was 3.9 percent in the late 1990s and it saw its lowest point in 2015 as it collapsed to 0.1 percent. If there is one force that could pull Brazil out of the hole in which it is now that force is industry, which is why it is shocking to read that tax breaks given to industry are ineffective. One single large company in an average city directly employs over 2,000 people. Slowing industrial activity in 2014 and 2015 has left many people all over the country unemployed, which has affected -both directly and indirectly- tens of thousands of other jobs that depend on manufacturing and agricultural production. If Brazil cannot guarantee a minimum of fiscal stability to the industrial sector, unemployment would rise nation-wide as more companies would slow down their activity. Such outcome would in turn leave large numbers of Brazilians without a job. Those jobless men and women would immediately seek government subsidies in the form of unemployment checks, burdening even more the empty coffers of the Rousseff administration. The second gravest problem that Brazil faces today is not inflation or the pension system, as The Economist cites, but the impossibility for foreign companies to operate in the country. In this, the article published on 2 January does make sense, although it does not award it enough relevance. A simpler, more straight-forward process to register and operate a new business in Brazil would save entrepreneurs a whole lot of time and money. More new businesses, especially small and mid-size ones would […]
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