Jordan Pic, MPA, Staff Writer, Brief Policy Perspectives
Since it hosted the World Cup in 2014, Brazil has been in the global spotlight. The light continued to shine this year when Brazil hosted the 2016 Summer Olympics. Now, the confetti is swept and Brazil faces its economic reality.
Hosting the World Cup and the Olympics was an expensive distraction that cost Brazil billions. Of the $3 billion spent on infrastructure for the World Cup, 90% was public money. In total, the event cost $15 billion. Originally, the promise was for the World Cup to be privately funded .The Rio Summer Olympics cost Brazil 4.5 billion dollars–which was 50% over budget. These events represent examples of Brazil’s history of mismanagement and overspending and are not an exception to the state’s overbearance.
Brazil is in its third year of a recession and the unemployment rate is currently around 11%. The recession began when Petrogas,the state owned oil company, was outed for a major corruption scandal. Former President Roussef and many members of her political party are tied to the scandal. This led in part to Brazil’s current condition. In addition, trade and commodity prices in Brazil are low and these are the basis of Brazil’s economy. President Temer, who also faces allegations of corruption, has called for Brazil to turn to the right. Brazil’s corruption, regulations, and taxes have made it more expensive to do business than in most countries.
Temer’s Try Out
Brazil’s history of state-owned infrastructure and federal subsidies have created little growth in recent years due to their regulations and mismanagement. It is time for the federal government to take the bench. A free market and fiscally conservative approach starting with Temer’s plan for private infrastructure investment, freer trade regulations, and reform of national government spending will allow Brazil to prosper. In the leading months, Brazil should consider his suggestions for reform and values that will pave the playing field for prosperity in Brazil. Some analysts believe Brazil’s economy has bottomed out. This is the prime time for Brazil to rebrand and rebuild its economy.
Thankfully, President Temer laid the groundwork for a privatization plan last month. Temer’s plan consists of auctioning off infrastructure including airports, railroads, oil, and power to private companies. Part of the plan proposes legislation that bans Petrobas from having a 30% stake in new developments.The plan also aims to raise billions of dollars from these industries, which is expected to narrow the country’s record budget deficit. Brazil needs to move forward with these plans, which will decrease overall state involvement with infrastructure and pave the way for its more efficient operation in private hands.
Temer is also leading discussions on trade reform and expanding global business, especially with the European Union. Currently, Brazil is part of the Mercosur regional trade bloc. Businesses in Brazil claim they have been hindered from markets due to this pact.The Mercosur agreement includes tariffs on export good thats are not usually found in free trade agreements. Brazil’s protectionist trade policies have limited its opportunities for trade partnerships. Since joining the regional pact, Brazil has only made four free trade agreements. Comparatively, since Mexico joined NAFTA, it has secured 40. Brazil’s main trade relationship is with China, and since the stock market bubble burst in China, Brazil’s GDP has decreased by 3 to 4%. Moving forward, Brazil should encourage free trade globally and provide incentives for new markets such as cutting tariffs.
With the end of his term already in sight, Temer only has until 2018 to implement his plans for privatization and free trade. Two years may not be enough time to overhaul the economy, but it is enough time to set a precedent. Now is the time to act. The next administration will be able to continue reforms included in Temer’s platform. One such reform is for pensions. As former President Lula recently enacted favorable social reforms, pension reform will not be popular. However, the current system has proved to be unsustainable. Temer created legislation that proposes spending caps on the next 20 years. Lifting the retirement age is a logical compromise to continue the pension program while meeting fiscal responsibility.
A Return to the Spotlight
The Heritage Foundation’s economic freedom report ranks Brazil 122nd in the world for economic freedom. Government corruption has allowed for an unfriendly business environment of red tape, overspending, and special interests to flourish. Temer’s plans to drastically decrease the budget and encourage free markets promote economic freedom. If Temer and the next administration follow these policies, Brazil may return to the global spotlight yet again, and this time, for good.