Opinion: A Guide for the Perplexed

03/30/2015 - 10h26

The reader is surely perplexed with what is happening in Brazil.

While significant numbers of economists have expressed optimism and support for the fiscal and monetary policies of the Ministry of Finance and the Central Bank, others argue that the measures do not go far enough.

They claim that the change in policy is too little, too late, given that inflation is expected to remain high and other reforms are necessary for growth to return.

Businesspeople from a range of sectors have been displeased by tax rises at a moment when sales are falling, while unions are outraged at the restrictions on workers' rights. Meanwhile, politicians from the government's coalition have been siding with the opposition, defeating the government on important issues.

With the economic situation set to get worse, this confusion is likely to increase. All the more important to seek clarity, then.

Such a process of fiscal and monetary adjustment at a moment of economic recession is not common in the context of the global economy, but this is the result of the government's economic policy over the last four years.

Fiscal and monetary stimuli increased public debt and inflation, with a fall in activity which has driven us to the point of recession.

In this context, the fiscal adjustment is vital in order to restore credibility and control inflation, ultimately permitting economic normality to return.

However, the tax burden faced by the population and by companies is excessive for an emerging nation like Brazil, especially when one considers the quality of public services.

This is why businesspeople, workers and politicians complain. They are all being asked to tighten their belts in one way or another, with the Federal Government intending to raise taxes, cut workers' rights and cut funds to states and municipalities. However, the government is not making a corresponding effort at the federal level.

So what is the solution? Fiscal adjustment to eliminate doubts regarding the country's solvency, and increases in interest rates to control inflation. We should also look to what some European countries - especially Spain - have been doing in order to escape the crisis: base adjustment not on tax rises, but on spending cuts and reforms to improve productivity and the conditions for business.

In Brazil, this will involve tax and labor reforms, as well as a program to facilitate massive investment in infrastructure, with attractive returns for the capital available on the global market today.

To achieve this, the government must have clear direction, solid authority, political leadership and the ability to communicate that there is light at the end of the tunnel.

Translated by TOM GATEHOUSE

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