This article is part of Brazil Talk’s 2018 Elections Series and is intended to give our readers a deeper understanding of the Brazilian political system, its complex electoral process and gather diverse perspectives and opinions on what the world should expect from Brazil in the upcoming months and the future of the country at the beginning of 2019.
By Daniela Campello
[5 min read]
One can hardly understand politics and policymaking in Brazil without considering the boom-bust cycles that are typical of South American economies. Brazil, like most of its neighbors, is a low-savings-commodity-exporting (LSCE) country. As such, its economic performance is highly determined by the behavior of two factors that are beyond government control: the prices of commodities that affect the country’s terms of trade, and U.S. interest rates that largely determine international inflows of capital.
Thus, the most favorable international scenario for Brazil occurs when commodity prices are high and U.S. interest rates are low. In these periods, abundant dollar inflows from trade and finance contribute to faster economic growth with relatively low inflation and boost fiscal expenditures. The worst scenario occurs when the opposite happens – when low commodity prices coincide with the high US interest rates.