Synthesis of the Brazilian Economy
CHRISTMAS SHOPPING
Taking advantage of the relaxed climate of year-end parties and trips, politicians in Brasília are racing to misuse the public purse, by relaxing the rules that guarantee impersonality, transparency, competition, and fiscal discipline. Even the phantoms of the “creative accounting” that marked the Dilma/Mantega/Arno administration are returning to haunt the country. The forecasts of the behavior of the public debt in relation to GDP, estimated to increase at some 10 percentage points in the next few years, reflect the costs of this climate of “anything goes”. Nevertheless, the complacency generated by the plentiful international liquidity has been producing good results in various markets. The argument that Brazil’s peer countries are in a worse situation can be useful to guide short-term operations, but it won’t hold up in the long run, leaving open the question about the costs that will be imposed on the country by the absence of fiscal responsibility and a serious government plan.
FISSURES IN THE FISCAL FRAMEWORK
The fiscal framework, with barely three months of life, has been suffering multiple blows, which can be partly blamed on its very design, meant to be flexible, but replete with complex and often conflicting rules, and partly attributed to the voracity of politicians. After the controversy about Lula’s defense of a primary deficit in 2024, the current dispute involves the amount in the budget to be placed on contingency to achieve a balance of zero. The framework forecasts a contingency of 25% of discretionary expenses (resulting in R$ 53 billion next year), but the government defends blocking only R$ 23 billion, to assure 0.6% annual real growth of expenditures and to preserve the PAC (Growth Acceleration Program) projects, among others. The result will be known in the next few days.
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