Entering text into the input field will update the search result below

What Went Wrong In Brazil?

Dec. 25, 2014 7:33 AM ETEWZ, BRZU, BZQ, UBR, DBBR, FBZ7 Comments
Scott Sumner profile picture
Scott Sumner
1.13K Followers

Back in 2012, Paul Krugman did a post praising the "New Economic Policy" in Latin America, which focused on reducing inequality. A few weeks later, he singled out Argentina and Brazil for special praise:

Just to be clear, I think Brazil is going pretty well, and has had good leadership. But why exactly is Brazil an impressive "BRIC" while Argentina is always disparaged? Actually, we know why - but it doesn't speak well for the state of economics reporting.

And it's true that these countries had shown some impressive growth. But that was more than 2 and 1/2 years ago. How do things look today? Obviously, things are going downhill rapidly in Argentina, but what about Brazil? Here's The Economist:

IN 2005 a debate raged between the two most powerful figures in President Luiz Inácio Lula da Silva's government. Antonio Palocci, the finance minister, proposed taking advantage of faster economic growth to eliminate Brazil's persistent fiscal deficit-and thus lower its exorbitant interest rates-by capping the increase in federal spending. But Dilma Rousseff, Lula's chief of staff, thought Mr. Palocci's plan "rudimentary" and blocked it. Ms. Rousseff became Lula's successor as Brazil's president in 2011, implementing a "new economic model" that placed full employment and wage increases ahead of macroeconomic rigour.

Fiscal laxity has come back to haunt Ms. Rousseff, who won a second term last month by the narrowest of margins. As we went to press she was due to announce that Joaquim Levy, one of Mr. Palocci's deputies in 2005, will become her new finance minister. Nelson Barbosa, the most capable economist in the ruling Workers' Party (PT), will get the planning ministry. Mr. Levy is a Chicago-trained economist who has been running a big asset manager; his presumptive appointment has been welcomed by investors. It seems that Ms. Rousseff has at last tacitly accepted the error of her economic ways.

This article was written by

Scott Sumner profile picture
1.13K Followers
Bio My name is Scott Sumner and I have taught economics at Bentley University for the past 27 years. I earned a BA in economics at Wisconsin and a PhD at Chicago. My research has been in the field of monetary economics, particularly the role of the gold standard in the Great Depression. I had just begun research on the relationship between cultural values and neoliberal reforms, when I got pulled back into monetary economics by the current crisis.

Recommended For You

Related Stocks

SymbolLast Price% Chg
EWZ--
iShares MSCI Brazil ETF
BRZU--
Direxion Daily MSCI Brazil Bull 2X Shares ETF
BZQ--
ProShares UltraShort MSCI Brazil Capped ETF
UBR--
ProShares Ultra MSCI Brazil Capped ETF
DBBR--
Deutsche X-trackers MSCI Brazil Hedged Equity ETF

Related Analysis