Brazil celebrated nearly a decade of uninterrupted economic development in 2014, suffering a deep recession at the end of 2014-2015. The Brazilian economy was suffering from dropping global commodity prices and increasing deficits in the aftermath of the crisis. Early in 2017, there were indicators that the economy was starting to improve. Given that unemployment is still high, there is widespread concern about the economy’s future. The COVID-19 virus wreaked havoc on the Brazilian economy in 2020. Brazil had a resurgence in economic activity in the second half of 2020, following the disastrous first wave of COVID-19, but additional rounds of contagion and a jump in global inflation have slowed that recovery.
The most significant factors explaining the decline in the competitiveness of the Brazilian economy since 2014 were adverse developments in commodity prices and shocks to domestic factors, including domestic demand, monetary policy, and financing costs (Holland 105). On the other hand, external shocks such as shocks to global uncertainty and shocks to global financial conditions and external demand were less significant as a reason for the slowdown. Since Brazil is a net oil importer, the main channel through which lower oil prices affect GDP is through investment, not just terms of trade, as is the case with net oil-exporting countries (Holland 99).
The crisis resulted in Dilma Rousseff’s impeachment and Michel Temer’s subsequent ascent to power (Holland 92). To bring the economy out of recession, several steps have been adopted and planned. The most significant was the constitutional amendment known as the “New Fiscal Regime,” which set a spending cap for the government for the next 20 years (Cuevas et al. 101). Another solution was the outsourcing law, which permitted corporations to engage outsourced staff for both core and non-core operations (Cuevas et al. 102).
The IMF chose a collaborative approach, noting that the Brazilian economy is underperforming its potential, that the country’s public debt is huge and increasing, and, most crucially, that medium-term growth prospects are bleak in the absence of substantial reforms. The IMF has adopted a steadfast stance in favor of budgetary reduction and comprehensive structural economic reforms (Holland 93). The government’s volatility and fragility, as well as massive structural flaws in the Brazilian bureaucracy, have been major roadblocks to an IMF program.
When exporting to Brazil, exporters need to be informed of a few obstacles. The economic crisis resulted in lower corporate and consumer demand, as well as a considerable depreciation of the Brazilian currency. Hefty taxes, high import tariffs, and a complicated tax structure challenge exporters and investors (Christensen and Francisco 1406). Doing business in Brazil necessitates a thorough understanding of the local context, as well as a thorough understanding of the high expenses of doing business in the country (Christensen and Francisco 1401). Furthermore, high logistical costs are caused by inadequate infrastructure and an ineffective customs system.
For international investors in Brazil, there are numerous suggestions. Due to local content criteria and significant levels of corruption, Brazil’s opaque public procurement systems benefit local players (Cuevas et al. 107). Trade facilitation cooperation between the United States and Brazil, as well as a long list of transportation and logistics infrastructure projects, are expected to attract more international investment. It is also crucial to note that a number of organizations assist with the early bureaucratic procedures. Chambers of commerce between the United States and Brazil, for example, as well as US Commercial Service Offices and Trade Representatives (Christensen and Francisco 1403). As a result, a potential investor might ensure their help and support in order to make a successful investment in Brazil.
Works Cited
Christensen, Darin, and Francisco Garfias. “The politics of property taxation: Fiscal infrastructure and electoral incentives in Brazil.” The Journal of Politics 83.4 (2021): 1399-1416.
Cuevas, Alfredo, Antonio Spilimbergo, and Krishna Srinivasan. “Brazil: Economic Policies and Institutions in the Twenty-first Century.” Journal of Development Perspectives 3.1-2 (2019): 96-110.
Holland, Márcio. “Fiscal crisis in Brazil: causes and remedy.” Brazilian Journal of Political Economy 39 (2019): 88-107.