By Tatiana Acar
[7 min read]
Assessing how credibility affects both the economy and individuals in a tangible way is a complex issue in the economic debate. We can conceive the delicate concept of confidence through the image of a horse being trained to jump obstacles. In order to gain his trust, the athlete needs to show commitment and respect. With sufficient warning, the horse tends to follow his commands, and both will have a durable relationship. However, unexpectedly forcing it to jump will make the horse suspicious. If surprised, he can harm the athlete and destroy all the environment around him. Worse, once the trust is betrayed, it is hard to recover it. Brazil’s current crisis scenario could be linked to this metaphor since the fiscal misconduct seen in the last years has undermined the population’s confidence and generated great disarray among consumers, businesses, and investors. Output growth has fallen more than 7% in two years, causing unemployment more than doubling. Recovering the lost development will consume a large part of Brazil’s next presidential term, which has been predicted by some analysts already. But why has the country reached this stage? What is the relationship between credibility and the level of employment and income?
Credibility is built when people notice, over time, that the government has not only committed to the policy it communicated, but it has also managed to achieve its goals. When a government spends continuously and increasingly, uncertainty about the country’s fiscal solvency tends to be higher. Thus, the effect of fiscal stimulus on the economy and individuals might become counterproductive by pushing up long-term interest rates, inflationary expectations and undermining longer-term growth prospects. This puts the government into a dangerous vicious circle, as the fall in the output causes a drop on tax revenues, further increasing the fiscal imbalance.
Continue reading “The Brazilian Fiscal Crisis: The Lost Credibility”
by Isabela Messias, MIA candidate 2017 at SIPA
Brazil has been going through a lot lately: an impeachment process, a corruption scandal and an economic crisis that has plunged Brazilian GDP by 3.8 percent in 2015. Worldwide, a number of newspapers and TV channels have been discussing the crisis and its negative consequences for the country. Media outlets have mentioned the possible effects the crisis may have on Brazilian democracy, on the future economy, on investments, and on many other areas and sectors. Continue reading “Saving the Lost Generation”
By Marina Lafer, MPA Candidate at SIPA, Columbia University
In 2004, belonging to a social and economic environment in which people were constantly raising doubts over the efficacy of Lula’s policies as Brazil’s President, I remember myself having a bad – unsupported – impression over Bolsa Familia, a program that aims to provide small cash transfers to extremely poor families, conditioned to keep their children in school and take them to preventive health check-ups. At the time of its creation, I was only fourteen years old and had the conception that it was not addressing the poverty issue. Additionally, I believed that the amount of money spent on the program was too great and by compromising that investment with one policy, the Government left many public problems unattended. Continue reading “Brazilians Have A Civic Role In Keeping the “Bolsa Familia” Program”
Brazil Talk in 90 Seconds is a series of videos, one every week, with news analysis from Brazil. This week we talk about the reform of the pension system. On Wednesday, government officials met with members of Congress and union leaders to discuss seven proposals to pension reform. This is a very urgent and controversial topic because Brazil’s pension deficit increases by 50% every year. Yet, any reform that scales back benefits will be extremely unpopular, particularly in an election year and during economic crises. Moreover, the government does not have the support of President Rousseff’s own party – Partido dos Trabalhadores – and other parties on the left, which will make a reform less likely to be approved by Congress.
Brazil Talk in 90 Seconds is a series of videos, one every week, with news analysis from Brazil. This week we talk about the pessimistic economic outlook after Carnaval celebrations. GDP is expected to shrink between 3% and 4% in 2016 and inflation is projected to continue rising until the end of the year. In the meantime, Rousseff’s administration decided to postpone the announcement of spending cuts until March, raising speculations that the government is ready to reduce costs as required.