Brazil's Economic Policy Lurches Right

Free-market practices are put in place to fix the economy

“It’s Brazil. They’ll never get everything they want”.

- Peter Millard

 

Brazil managed to pull off the Rio Summer Olympics and silence the naysayers. Now the country has a bigger act to manage—approve a painful austerity package to help bring on an economic rebound.

Michel Temer, the provisional president who was sworn in after Dilma Rousseff was impeached on Aug. 31, is aiming to halt the interventionist economic policies and fiscal recklessness pursued by Rousseff’s Workers’ Party. His economic team has won praise on Wall Street for formulating policy less like disastrous Venezuela and more in line with the region’s emerging market darlings, Chile and Colombia. In Argentina, President Mauricio Macri has gained investor confidence by unwinding regressive economic policies, including currency controls, providing a model for Temer and his advisers as they struggle to lift Brazil from a two-year recession, its deepest on record. The country’s budget deficit as a share of gross domestic product is 10 percent, compared with 3 percent in 2013, the peak of the commodities boom.

“There is a shift toward neo liberal policies again. It is happening all over Latin America, with the exception of Venezuela, maybe Ecuador,” says Carlos Langoni, a former central bank governor who’s director of the Center for World Economy at the Getulio Vargas Foundation in Rio de Janeiro. “It is no longer an ideological choice. It’s a pragmatic matter. The state is broken; there are no funds for the state to lead this new stage of growth.”