Fiscal responsibility key to set Brazil’s economy in motion

 

Following a series of disappointing years, Michel Temer’s interim administration now has to carry the burden of the recovery on their shoulders. With a severe budget crisis in his hands he will have to roll back much of what made former president Rousseff popular, the large-scale social programs.

Two of Brazil’s most prominent authorities on the economy, central bank president Ilan Goldfajn and Finance Minister Henrique Meirelles agree on this. The priority for Brazil should be to address the monstrous budget hole. With that fixed, all other problems will find swifter solutions. Investment trust will come back, industries will once again produce and consumers will see some extra cash in their pockets.

Goldfajn argues that this is no longer the time for short-term solutions: “Increasing inflation to finance public spending is no longer an option. Laws of fiscal adjustments are necessary.”

Among these, Brazil’s congress is now considering imposing public-spending limits for at least the next 10 years to be voted on in the following weeks. Additionally, the government now looks towards cutting back on their generous retirement program. All of this will come at the cost of popular support to subsequent center-right governments, as people see their benefits stripped from them in favor of a more dynamic economy.

Amid an arduous transitional period, Brazil is expected to have its economy shrink by 3.4% in comparison to last year, a number that will make things increasingly difficult for Temer as his economic moves continue to have limited positive effects.

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