Synthesis of the Brazilian Economy

BRAZIL ECONOMICS - Report 29 Jul 2024 by Alexandre Schwartsman, Cristina Pinotti and Diego Brandao

OVERVIEW

THE SHORTSIGHTEDNESS OF DEMAGOGY

Encouraged by the slight improvement, within the margin of error, in the assessment of his government, especially among low-income groups, Lula jettisoned promises made after meeting with Haddad and economists sympathetic to the government and returned to defending the freedom to spend, while attacking the Central Bank and its governor. The veneer lasted only a few days, much to the dismay of those hoping for a bit of rationality in the country's management.

The vows were not sincere, and the relapse came wrapped in strong demagoguery with a clear target, starting with "the poor don't eat dollars" ("They do eat dollars," as Alex showed). Next, he said that "he is not obliged to meet the [fiscal] target if there is something more important to do." Last Friday, he again criticized the Central Bank governor for the (correct) statement that the increase in the minimum wage and wage bill could result in inflation (in a context of a heated labor market and an economy close to or beyond full employment). The president retorted, "So, to avoid inflation, should people earn less? Does this person not have respect?"

With Newtonian regularity, asset prices and the exchange rate reacted, once more exceeding R$ 5.60/US$. Those few who believed that the exchange rate could return for a long time part of the depreciation that occurred in recent months, with Brazil re-approaching its peers, suffered losses.

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