Brazil's economy


Mar 4th 2005
From Economist.com



After a devaluation of the real in January 1999, Brazil reined in public spending and introduced emergency taxes to cut the national debt, which was over half of GDP. Recovery was fitful at first, but the austerity measures largely succeeded in keeping inflation on target and chipping away at the debt.

In 2001 Brazil managed to avoid severe contagion from Argentina's collapse, but uncertainty returned in 2002, this time thanks to domestic politics. A left-wing candidate with little government experience, Luiz Inácio Lula da Silva, beat the government's choice in Brazil's 2002 presidential election (though only after vowing to stick with orthodox economic policy).

Tough economic issues abound: weak finances, poverty and the need to create jobs (which requires cutting barriers to investment). His first year in office encouraged markets, as he delivered reforms of the public-sector pensions system and the tax code. But in early 2004 bond spreads edged back up on concerns that government discipline was slipping. Trade will also be a big focus: Lula has tried to work with other developing countries to get better deals from the United States, and in pursuit of trade advantage he recently became the first Brazilian president to visit China. Interest-rate policy—which has seemed to be focused on inflation at the expense of growth—has made the job of balancing popularity and prudence even harder. Though the monetary toughness finally showed some happy results in the summer of 2004, by early 2005 critics were worrying that the government was getting too tough for its own good. With economic concerns likely to dominate local elections in October 2004, the payoff for prudence may not come fast enough.

http://www.economist.com/research/backgrou...r.cfm?bg=616685