Economics Essay: Brazilian fiscal

Brazilian fiscal

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.