adminBRASILIA. — Brazil, Latin America’s economic behemoth, is in dire need of structural reforms and reduced government bloat to fuel sustainable growth, analysts say.
This, they add, will not happen overnight and will take massive political will.
“Brazil’s problem is that it carries a heavy load: the State,” said economist Pedro Tuesta of the 4Cast consulting firm in Washington.
“There needs to be a radical change in the role of the State.
“Prioritise the country’s infrastructure more than control the private sector,” he argued.
On Wednesday, credit rating agency Moody’s lowered its outlook for Brazil’s sovereign debt from “positive” to only “stable.”
“Key credit metrics are deteriorating, especially Brazil’s government debt-to-GDP and the investment-to-GDP ratios,” it said, warning that Brazil faces a protracted period of low growth.
In 2010, the economy posted 7,5 percent GDP growth after contracting 0,2 percent in the wake of the 2008 sub prime crisis.
In late 2009, influential British weekly The Economist, projecting a Brazilian economic rebound, posted a picture of Rio’s iconic Christ the Redeemer statue on its cover, taking off like a rocket.
But two years later, the country grew a paltry 2,7 percent and an anaemic 0,9 percent last year. This year the economy is projected to expand by only 2,5 percent.
The Economist recently portrayed the statue as a wayward rocket spiralling downwards and asked whether Brazil had blown it.
But, in the wake of last June’s massive street protests against corruption and poor social services, president Dilma Rousseff, rejects criticism of the country’s economic performance.
“We are the only major country with full employment. We have posted the third-best growth figures in the world during the second quarter. Whoever bets against Brazil will always lose,” she added.
The world’s top producer of coffee, sugar and orange juice and one of the biggest producers of meat, soya beans and iron ore, Brazil has benefited from high commodity prices on world markets.
“This price increase was artificial, fuelled by zero interest rates in the United States and the huge demand from China,” said economist Enrique Alvarez of New York-based IdeaGlobal.
Brazil, now the world’s seventh largest economy, also boosted domestic demand. Its middle class expanded and improved its purchasing power amid a continuing low jobless rate. With the domestic currency, the real, appreciating against the dollar, Brazilians increasingly travelled and shopped abroad, a trend that is continuing although now the real is depreciating.
Yet now the commodity price boom is over. And stimulus packages could be phased out at any time in major economies.
Meanwhile, strong domestic demand and a global drought are pushing local prices upward while inflation is approaching the upper limit of the official target set at 6,5 percent.
The central bank opted to hike its base rate to nine percent to rein in surging consumer prices, which impacted growth.
Faced with chronically inadequate domestic infrastructure, Brazil is now trying to stimulate private investment to finance ports, highways and multi-million-dollar oil projects by state-run energy giant Petrobras to tap the country’s huge deep-water oil reserves. — AFP.
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