As Brazil sinks deeper into the ravages of recession, the new government seems more intent on protecting itself than the people it pretends to serve. Political debts are being repaid by reneging on the promised measures that could help the economy recover. No coalition has emerged under President Temer to enact any serious reforms. While some competent bureaucrats have been hired – notably Mansueto Almeida and Carlos Hamilton – it will take much more than the window dressing of fresh faces to usher in an era of prosperity.
Brazil’s economic growth depends on solid and forward-thinking institutions, willing to make hard choices. Unfortunately, courage and consistency have not been hallmarks in modern-day Brazilian politics. During prosperous periods, our leaders typically have opted for expedience by postponing unpopular but much-needed reforms. Only when pushed to the wall by mounting damage have they enacted necessary policies to rescue the country’s economy.
Over the past two decades, the most important macroeconomic reforms have emerged from the brink. The privatization of state banks and renegotiation of state debt in 1997, the targeting of inflation in 1999, and the passage of the Balanced Budget Act of 2000 all were born of desperate times. In 2016, the need for sweeping and dramatic action is here again. Facing a primary deficit of 4% of GDP with 6% real interest rate – and with a pension crisis clearly on the horizon — Brazil must immediately enact tax reform, among other measures.
We cannot settle for the timid, half-hearted action we have seen so far from our new government. The Temer administration’s response with wage repression and asset devaluations should bring some sort of short-lived economic recovery. But it will likely be feeble at best, keeping Brazil on its usual “chicken flight” to new and equally devastating economic consequences in the future.
Real reform, however tough to swallow, is required to restore long-term confidence and growth. The Temer government, like its predecessor, appears either unwilling or unable to accept that fact of economic life. For now, new elections may be our only way out.