The objective of the report is to analyse how the
Brazilian government is using fiscal and monetary policies
to stabilize the economy.
Since the 1999 market-forced devaluation, Brazil has experienced
periods of growth and recession. After a surprisingly fast
recover from devaluation, the economy plummeted again in 2002
into recession with an impressive depreciation in Real of
almost 40% in the run-up to the Presidential election and
the market’s concerns over a left-wing party.
The 2002
crisis brought the inflation back to levels around 12.5% which
forced the government to raise the overnight interest rates
to 26.5%.
Therefore, it is important to address how the government
has worked to smooth the effects of such events on unemployment,
inflation, output and social welfare.
Another current issue is the proposal to increase the Central
Bank’s independence. Then we discuss whether such change
can potentially improve the Central Bank’s and government’s
macroeconomic policy effectiveness.
Finally we will discuss the current monetary policy, its intermediate
targets and the tools available at government’s disposal
in order to achieve its objectives, and how Brazil is performing
vis-à-vis the IMF agreement parameters.
Conclusion
Brazil is clearly attempting to achieve better growth
rates by investing not only on capital accumulation but also
on Technological progress, be it on R&D or ICT investment.
Attracting foreign investment has not only financed its current
account deficit but also imported foreign technology which
is eventually an essential condition for TFP improvements.
On top of that, Brazil is currently investing in the Labour
Market Education as a means of achieving both a more skilled
labour force and lower unemployment rates.
However, an appropriate economic environment is also essential
to achieve sustainable growth. In this field, the Brazilian
economic policy has focused mainly in keeping its inflation
rate within the target range by changing the interest rates
as much as needed.
The last years disappointing numbers of the country’s
growth rates seem to ensure a need for both a favourable external
environment and a reasonable internal supportive economic
policy in order to achieve higher growth rates.
A more stable
regional scenario and an external environment with sound improvements
in the relations with its main neighbours in South America
will greatly contribute to its uprising.
Finally, if the conditional convergence holds, then Brazil
is working hard to not only rely on the catch-up advantage
of the poorer nations but also invest to shift its steady-state
forward, in order to more significant growth.
Please note: The above economics essays and dissertations were written by students and then submitted to us to display and help others. Thanks to all the students who have submitted their work to us.
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