The fallacy of improving the brazilian economy with michel temer government
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The document critiques the Michel Temer government's handling of the Brazilian economy, asserting that it remains in recession with indicators like high unemployment, declining consumption, and stagnant industrial output. Economic recovery is hindered by a lack of investment, excessive public spending, and ineffective fiscal policies, resulting in a predicted GDP growth of only 0.2% in 2017. The document emphasizes the need for substantial public spending reform and tax adjustments to stimulate recovery and highlights that agriculture is the only sector showing positive growth.
The fallacy of improving the brazilian economy with michel temer government
- 1. 1 THE FALLACY OF IMPROVING THE BRAZILIAN ECONOMY WITH MICHEL TEMER GOVERNMENT Fernando Alcoforado * Contrary to the Michel Temer government's announcement, the Brazilian economy shows no signs of recovering from the biggest recession in Brazilian history that began in the Dilma Rousseff administration and continued with the current government. The current situation of indicators such as employment, consumption, industrial production, investment, GDP - Gross Domestic Product and public spending does not show the economic recovery announced by the government. On employment, it is important to note that the most recent IBGE data are not encouraging. The IBGE informs that Brazil has 14 million unemployed. The unemployment rate hit a record in the first quarter of 2017, reaching 13.7%. Unemployment is high because there is no economic demand to stimulate the creation of new jobs. On consumption, it is important to note that it is compromised by high unemployment and scarce credit. For the eighth consecutive quarter, all components measuring increased domestic demand were falling. In the first quarter of 2017, household consumption continued to decline and fell by 1.9%. High unemployment, with 14 million people out of work, explains this fall. Brazil's industrial output fell 1.8% in March compared to the previous month and has remained weak since early 2017, according to IBGE, showing that economic activity has not yet taken off. In addition, industry idleness is still very high. IBGE data present bad news about GDP growth that fell 3.6% per year in 2016 and the investment rate fell by 1.6% in the last quarter of 2016. GDP increased 1% in relation to the fourth quarter of the year according to IBGE. Technically, there is no reason to celebrate the data since the 1% rise in economic activity cannot yet be considered sustainable, since the investments continue to fall. This is the most disturbing side. Investment in production is the only driver of sustainable growth. Corporate investment also shows a decline in the second quarter, down 3.7% from the first quarter of last year. The investment rate in the period was 15.6% of GDP, lower than in the first quarter of 2016 (16.8%). It is the lowest since 1995. One fact is clear: companies will only invest when they believe they will have demand that is not occurring. It is likely that the recession level of 2015 and 2016 will not be repeated, but we are far from a light at the end of the tunnel, not believing that Brazil is recovering. GDP growth still does not signal a change in the trend of the Brazilian economy. Brazil is at the bottom of the pit. It may have stopped falling, but this is no guarantee of reversal. The International Monetary Fund (IMF) forecasts growth of only 0.2% in Brazil in 2017. Public spending, on the other hand, remains extremely high because with the recession, the government is collecting less and contributing to increase the public deficit. The deterioration of public accounts is due in part to the reduction in tax revenue caused by the recession because the fewer people receive and consume, the less the government collects taxes. In this scenario, there is no possibility for an expansionary fiscal policy, that is, to increase public spending to stimulate economic recovery, as it would leave investors even more afraid of the health of Brazilian public accounts. But the fact is that the government has few instruments today to deal with the crisis.
- 2. 2 The recession that affects the growth of the Brazilian economy is contributing decisively to the fall in inflation, whose indicator indicates an increase in the IPCA (official measurement) of April, which was 0.14%, the lowest index of that month ever registered by IBGE since the beginning of Plano Real, in 1994. Inflation is low because there was the biggest recession in the history of Brazil. But the fact that prices are not rising is precisely the consequence of the country's tremendous recession that the austerity policy of the Temer government prevents economic recovery. The fall in inflation contributed to the Central Bank promoting the reduction of interest rate (Selic) to 11.25% at the last meeting of the Monetary Policy Council. The only sector of the Brazilian economy that performs well is agriculture. With increasing agricultural production and international food prices, agriculture has been a good surprise, giving rise to the economic environment and contributing to a positive balance of trade (the relationship between exports and imports in the country). The agricultural sector stood out from other indicators, up 13.4% from the previous quarter, the result of a record soybean harvest. The Brazilian economy did not react as fast as the Temer government and the market had expected a year ago. The Temer government said that by sending a positive signal to the market, the reaction would come at a gallop. This did not happen. It was already for the economy to be showing signs of recovery, and this delay greatly weakens the Temer government. The signs that we have today are ambiguous, some indicators show improvement as what we show, and others show worsening. And unemployment will continue to rise over the coming months. One of the most worrisome indexes is unemployment, which continues its bullish climb. Without an improvement in the labor market - or at least a stabilization - the Brazilian economy will hardly have a sustained recovery, since household consumption is an important component of GDP (R$ 1.042 trillion in 2016). Brazil will continue to fall behind with the economic policy put in place by the Temer government. After a year of the Michel Temer government and the paralysis of the Brazilian economy, it is evident that there is a need to address the problem of public spending to recover the Brazilian economy from the greatest recession in history. What is the problem with public accounts? Explosive growth of government spending fueled by the unprecedented expansion of public debt in 2016 reached R$ 3.11 trillion and will continue to advance, reaching R$ 3.65 trillion at the end of 2017. This situation forces the Brazilian government to allocate 44.93% of the Union's budget to the payment of interest on the public debt. It is false to attribute spending to Social Security (21.76% of the Union budget), Education (3.73% of the Union budget) and Health (3.98% of the Union budget) as those responsible for excess spending. The main problem of the country is the public debt that requires immediate solution. To reduce the size of public spending, it is necessary to reduce interest payments (R$ 695 billion) by renegotiating with creditors the lengthening of the payment of public debt so that the federal government will have the necessary resources for its investments. In addition to the renegotiation of public debt, the real fiscal adjustment that should be adopted to solve the problem of public accounts at the moment would contemplate, on the one hand, the increase of the public collection with: 1) taxation of large fortunes with assets over R$ 1 billion which could yield approximately R$100 billion per year; And (2) an increase in the tax on banks whose profits have been stratospheric and, on the other hand, reduce government spending by: 1) drastically reducing the number of
- 3. 3 ministries and public agencies and expenditures at all levels of government; And (2) drastic reduction of the basic interest rate of the economy (Selic) to reduce the size of public debt and the burden of paying interest and amortizing public debt. None of this was done by the Michel Temer government, which is why the economy will not recover so soon. *Fernando Alcoforado , member of the Bahia Academy of Education, engineer and doctor of Territorial Planning and Regional Development from the University of Barcelona, a university professor and consultant in strategic planning, business planning, regional planning and planning of energy systems, is the author of Globalização (Editora Nobel, São Paulo, 1997), De Collor a FHC- O Brasil e a Nova (Des)ordem Mundial (Editora Nobel, São Paulo, 1998), Um Projeto para o Brasil (Editora Nobel, São Paulo, 2000), Os condicionantes do desenvolvimento do Estado da Bahia (Tese de doutorado. Universidade de Barcelona, http://www.tesisenred.net/handle/10803/1944, 2003), Globalização e Desenvolvimento (Editora Nobel, São Paulo, 2006), Bahia- Desenvolvimento do Século XVI ao Século XX e Objetivos Estratégicos na Era Contemporânea (EGBA, Salvador, 2008), The Necessary Conditions of the Economic and Social Development-The Case of the State of Bahia (VDM Verlag Dr. Muller Aktiengesellschaft & Co. KG, Saarbrücken, Germany, 2010), Aquecimento Global e Catástrofe Planetária (P&A Gráfica e Editora, Salvador, 2010), Amazônia Sustentável- Para o progresso do Brasil e combate ao aquecimento global (Viena- Editora e Gráfica, Santa Cruz do Rio Pardo, São Paulo, 2011), Os Fatores Condicionantes do Desenvolvimento Econômico e Social (Editora CRV, Curitiba, 2012), Energia no Mundo e no Brasil- Energia e Mudança Climática Catastrófica no Século XXI (Editora CRV, Curitiba, 2015) and As Grandes Revoluções Científicas, Econômicas e Sociais que Mudaram o Mundo (Editora CRV, Curitiba, 2016), among others.