Brazil: Self-Inflicted Pain

Abstract

The Brazilian economy grew 7.5% in 2010, when Mr. Lula finished his second mandate as president with a popularity rate of 85%. Six years later, his successor, Ms. Rousseff, is suspended from the presidency under an impeachment trial, while the economy endures a recession of 3.8% of the GDP for the second consecutive year. In this article I argue that the current economic crisis is the result of ill-advised economic policies. Ms. Rousseff’s government altered each one of the tripod of policies implemented by Mr. Cardoso in the 1990s, which had been successful in maintaining macroeconomic stability (namely, the inflation targeting regime, the floating exchange rate and the fiscal austerity). Also, Ms. Rousseff’s government greatly expanded the improperly designed industrial policies that were reintroduced in Brazil during the second mandate of Mr. Lula, which created distortions in the economy and a large fiscal burden for the government. The acting president, Mr. Temer faces great difficulties to put the economy back in order, since unpopular measures are required that are very hard to be implemented in the midst of the current political turmoil.

JEL Classification: O11, O23, O54