MercoPress. South Atlantic News Agency
What is behind Brazil’s high rates: loose fiscal policy, low savings or politics
With Brazil’s benchmark interest rate at 11.75% and prospects of further increases Latin America’s largest economy poses a challenge to economists and analysts. The answers are not only economic but also political. Read full article
Comments
Disclaimer & comment rulesMercopress has a history of publishing crappy economic analysis. This last piece only adds to the pattern.
Apr 19th, 2011 - 10:07 am - Link - Report abuse 0That the author would have chosen to measure fiscal policy on inflation targeting is very weird. Inflation is, to say the least, a very indirect measure of fiscal responsibility, since many factors influence inflation - not only government expenditure, but also private spending, capital markets liquidity, and currency issues. The latter - not government expenditure - is the main cause of Brazil's inflation. Inflation had exploded twice a little before Lula became president of Brazil in 2003 - once in 1999 and another time in 2002. And for both times the cause was the same: large current account deficits that occasionally resulted in capital flights and severe currency devaluation (a currency crisis), the latter being the cause for inflation. And the current account deficits had as cause the very same tight monetary policy the article tries to justify as being a counterbalance of fiscal policy.
If one actually takes a look at the budget deficits the government has been having, it can be seen that fiscal policy is not “loose.” In 2008, for example, deficit was 1.5% of GDP, probably one of the lowest deficits in the world. Deficit in 2009-10 deficit increased to 2.5-3% of GDP. That, however, was only a temporary response to the financial crisis with the aim to warm up the economy. And that deficit is very close to that of China, and much inferior to Russia's or India's -- all countries whose interest rates are much inferior to Brazil's. Ergo, monetary policy in Brazil has little to do with fiscal policy.
As for the rest of the article, the other parts are so ill-written, it is hard to know what it's being said.
I think we all know *exactly* what is being said.
Apr 19th, 2011 - 07:06 pm - Link - Report abuse 0The last four paragraphs are explicit statements of proven state corruption at the highest levels of government.
And Forgetit does his reputation no good by feigning lack of understanding.
@GeoffWard
Apr 19th, 2011 - 09:52 pm - Link - Report abuse 0I went to read the article again. But to no avail.
“The other big issue is very low domestic savings rate which makes the economy dependent on foreign funding to finance its development, which in turn requires high interest rates in order to attract the necessary capital.”
“Governments are also very receptive to demands from manufacturing and agriculture, most of the time not necessarily to improve international competitiveness, rather the contrary, and Brazilian diplomacy believes the country has a leading role to play in regional politics.
”Under former president Lula da Silva this was further expanded to Africa and as a first line player in the emerging economies group (BRICS) and in the South/North, emerging/industrialized nations’ dialogue.“
This isn't good writing - no cohesion, no coherence. And I see no reason to debate the allegations of the last four paragraphs. As seen in its very ill-argued assertion on the connection of monetary and fiscal policies in BR, the author isn't a serious analyst of the BR economic moment. To measure fiscal policy on inflation when there are numbers about the budget shows dishonesty. And so does the author's cynical explanation for Lula's support for the poorest states, those of the Northeast, as being driven by political interest alone.
- ”besides the fact he never ceased to expand the federal payroll”
As I said previously, budget deficits under the Lula government were very much under control (much more so than under neoliberal president FHC). Current public expenditure under his govt grew 4% aa - about the same as GDP growth. I don't know how that compares with FHC's government as a whole, though I do know that in his last year as president, 2002, current spending also grew 4% aa.
As for the last paragraph, that can be an outright lie as far as I'm concerned. The author isn't concerned with the truth but with pushing an agenda.
You seem to have skipped over the word mensalào.
Apr 20th, 2011 - 12:01 am - Link - Report abuse 0I feel sure you have read the recent Federal Police Report.
And are you actually saying Lula's and Sarnay's activities are and were uncorrupt?
Come on, Forgetit -
when you're good you're very, very good;
but when you're blind you're wicked.
I haven't read it, GeoffW. I know the Mensalão subject has resurfaced again but I don't know what else is being said about it.
Apr 20th, 2011 - 01:09 am - Link - Report abuse 0As I said before, the article is so confusing and incoherent, that it is hard to see what point it's trying to make. What does the mensalão have to do with inflation? Is it saying that inflation is caused by the money the government spent in the Mensalão scandal? Huh, that could fit a humorous edition of the Veja magazine.
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