Brazil International Macro Economy

Introduction

Brazil is the largest economy in South America. Under the leadership of former president Henrique Cardoso in the 1990’s, the country’s macro economic situation stabilized significantly. As the new millennium began, the leadership of president Cardoso’s successor, former president Lula da Silva saw the country’s economy accelerate significantly such that the Lehman scandal effect failed to significantly affect its growth (The Economist). Brazil economy reported an economic growth rate of more than seven percent in 2010 which is considered as its best performance in 25 years. This trend saw the country awarded the lucrative rights to host this year’s FIFA World Cup Finals. However, this has changes dramatically after former president Lula da Siva convinced Brazilian voters to elect Dilma Rousseff as their next president (The Economist). Currently, the country’ macro economic status is in turmoil with economic growth in 2012 reported to have been at less than 1%. This essay seeks to analyze the contemporary macro economic conditions in Brazil and present a commentary on the same.

Brazil’s macro economic woes

After recording a commendable economic growth rate of over 75% in 2010, Brazil is now faced with mass protests as its citizens decry the high cost of living, poor delivery of public services, corruption and greed among the country’s political elite (The Economist). As much as many other countries especially in Europe and the Middle East have been affected by economic downturns in the same period, the Brazilian context is different. The short lived economic boom was realized through government policies which checked runaway inflation, growth in trade, improved commodity pricing and allowed for improved credit facilitation for its citizens and home grown business enterprises as well as improved domestic consumption (The Economist). These policies have however exceeded their lifetime and the country’s inability to institute sound macroeconomic reforms in this period has resulted in the quick deceleration of its economic position.

Poor macroeconomic policies

Companies in Brazil operate in an economic environment which is heavily reliant on taxes. The tax code is such that up to 58% of Brazilian salaries go towards paying payroll taxes. Unfortunately, the government’s spending priorities are all messed up (The Economist). For instance at the retirement age of 54 years, pensioners can expect to receive up to 70% of their final pay as pension. On the other hand, vital macro economic growth indicators such as infrastructure development are accorded less than 2% of the country’s Gross Domestic Product (The Economist). This translates to unwarranted operating costs for many businesses in the country. It is reported that for a Soybean farmer, getting his or her product to a sea port requires transportation costs of up to 25% of the total value of his product.

Future macroeconomic prospects

It is important to note that these problems have been passed on from successive administrations. However, the current president seems to be unable to contain the macro economic problems facing South America’s most populous state. However, the country has major strengths with which political reforms, a competitive business environment which can attract direct investments and better public spending policies can reverse its unfavorable economic trend. The country should look for ways to improve on these aspects other than depend on a heavy tax code. Brazil has made huge technological strides in many scientific disciplines, is major producer of food and expects to be a major oil producer in the next decade. The country should therefore seek to align its macroeconomic policies towards the realization a stronger macroeconomic environment so as to reap the benefits of its huge population, regional market dominance and a professional workforce in the coming years.

Work Cited

The Economist. “Brazil’s future: Has Brazil blown it?” The Economist., 31 Mar. 2014. Web. 28 Sept. 2013.