After hosting the summer Olympics games in the summer of 2016, it is expected that Rio De Janiero and rest of Brasil would jubilant and stable. Well, this is not the case, instead Brasil is attempting to subdue a potential economic and political catastrophe. It is expected that Brasil's economy will shrink by 2.5-3% in 2016 and could return to its old ways of uncontrollable inflation. Brasil's suffering, similar to many emerging economies, is due to the falling global prices in commodities. The Brazilian government did not do itself any favors by higher pensions and higher taxes breaks for selected industries that did not increase productivity. These actions increased the fiscal deficit from 2% to 10% of GDP. The country is in debt by 70% of its total GDP and the interest rates on that debt is at 7%, which is making it difficult to pay off. The Central Bank of Brasil is not having any luck using monetary policy to fight inflation, as higher rates risk destabilizing the public finance by adding to the interest bill. Thus, it seems the only option is to cut government spending and increase taxes.
It is recommended that Brasil should focus their attention to pensions, with which the minimum pension is equivalent to the minimum wage. The pension rate has risen 90% in real terms over the past decade and as a result, the Brazilians are retiring, on average, a decade earlier than other relatively rich countries. Currently, Brasil pays 12% of its GDP in pensions. Brasil's political, party fragmentation and vote buying will not help the economic situation.
http://www.economist.com/news/leaders/21684779-disaster-looms-latin-americas-biggest-economy-brazils-fall
It is sad seeing such a beautiful country that is rich with culture struggle from an unstable economy. Honestly I thought this when Brazil got picked to host the Olympics and I now see this is true, their economy and country was not ready to handle something that large and it is showing now.
ReplyDeleteI find very shocking the information about Brazilians retiring a decade earlier than people in other relative rich countries. A decade is a very long time and in would be interesting to know what are the reasons for this, and also how is this affecting the economy in aspects like the labor force, and how it affects the total output of the country. Another thing to look into would be to understand why is this people retiring earlier, some of the reasons could be that either they have enough money to stop working, or also that they are just discouraged and decided to retire because they couldn't find another job.
ReplyDeleteI have to agree that Brazil was truly not ready to host the olympics, and now the after effects are showing up. Also it was interesting how the increased tax breaks for selected industries did not increase productivity, and uncontrollable inflation seems to be inevitable.
ReplyDeleteIt is shocking to read about the current situation of Brazil. It looks likes it's mainly because of the political reasons that the condition has become worse as no efforts were made to stop this.
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