Published On: Wed, Jul 19th, 2017

Despite political unrest, Brazil’s economy takes turn for the better

Despite political unrest, Brazil’s economy takes turn for the better

By Carlo Barbieri

In the analysis made by the Brazilian Minister of Finance, Henrique Meirelles regarding the development and current situation of the Brazilian Economy, if the political arena remains confused and the opposition got the alliance of Brazil’s Attorney General to destabilize the Federal Government, the results in the economy show economics is detaching from politics.

The negative growth of the private sector, which reached 3% of GDP (Gross Domestic Product) since 2014, has, for the first time, returned positive signs, increasing from 0.5% of GDP, thus presenting a positive image.

Also, the level of confidence in relation to the GDP has had an impact on the agricultural area and is reaching other sectors of the economy. It rose from 105 points in June 2012 to almost 140 in June 2017, according to the Getúlio Vargas Foundation measurement.

In the field of external accounts, the trade balance has been extremely positive, and direct external investments have been maintained, which ensures a large positive margin in external accounts.

A fall in the level of inflation has helped to increase the purchasing power of the population, from a drop of -4% in October 2015 to a positive 4% in April 2017.

Unemployment has finally begun to decrease as well, tipping its curve downward – even though the reduction is slight. This, in some fashion, gives the most unemployed and underemployed population the most hope and confidence.

The interest rate has gradually been lowered by the Central Bank, offering a certain measure of relief to those who have debts in general and for the government in particular.

This fact is also reflected in the indebtedness of various companies which has dropped substantially, just as families have begun to deal with their own debts by paying them off as rapidly as possible.

GDP, which has fallen by about 4% a year for two consecutive years, should stabilize and end its freefall — for the first time in years — with a positive attitude for good reports in the future.

Many reforms needed more than 15 years ago are beginning to be made.

In the microeconomic field, implementation of the positive registration (credit report), the creation of the electronic trade note, the change in fiduciary legislation, the new bankruptcy law and the real estate guarantee letter were all made, bringing with them an important reduction in the banking spread.

Also put into effect were new technology in government tax collection systems, including E-Social, SPED, NFS-e and Redesim, reducing the time it takes to pay taxes from 2,600 hours to 600 hours. The amount of time needed to open and close companies has been trimmed from 101 days to three days, at least in São Paulo.

Newly approved labor reform will provide employer with confidence that they can hire workers and lower labor costs. This restructuring, when it begins working in 120 days, should bring more jobs to the population – an estimated six million new job opportunities.

Likewise, the constitutional limitation of public spending will help to contain any demagogic legislation that increases these costs.

Although many important reforms, such as social security, are still pending, there are strong, new expectations in the economic area.

The economy stopped falling and re-established stability.

The role of the state is diminishing and productivity is increasing.

These data logically tend to make it harder for the opposition to prevent growth, under the worst-worst scenario.  And on the other hand, the political basis of the government (which is largely the same as the PT government) remains corrupt and incompetent.

But this political segment will only have a solution if the population next year is able to elect politicians who are competent and less dishonest than some of those currently serving.

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