How successful has the Government and the Central Bank of Brazil been in running its economy over the last two years - Essay Example

The Success of the Government and Central Bank of Brazil in running the Economy over the Last Two Years Introduction Brazil is currently Latin America’s most successful economy. It is also an important trading partner for powerful developed nations such as the United States. In spite of its recent remarkable progress in terms of economic development, though, Brazil is still characterised by policies that serve to undermine the growth of its private sector. For example, as is common in many nations, Brazil’s government tends to dominate many sectors of the nation’s economy.

This undercuts business operations in the nation’s private sector. In the past decade, Brazil has experienced phenomenal growth bursts. However, in 2013 and 2014, the growth of the national economy has been slowed by unhelpful policies instituted by the national government and central bank. Micro Economic Policies According to Leahy (2014), the Brazilian government’s expenditures surpass 40% of the national GDP. The present Brazilian government, led by Dilma Rousseff, is no longer interested in maintaining the rapid pace of regulatory reform that saw the country perform so well economically just 4 years ago.

While Brazilian tax citizens bear a heavier tax burden than their counterparts in other developing nations, they still have to contend with a government that permits corrupt practices in public offices, and other undesirable realities such as judicial systems that could be influenced by politics, and insecure property rights. The Brazilian government, under President Rousseff, does not create enough regulations that facilitate economic freedom. There are numerous barriers such as burdensome taxes, problems with long-term financing, government-generated rigidities within the labour market, and inefficient regulation that hinder speedy economic development.

Macro Economic Policy In 2013, the national GDP of Brazil did not experience a significant growth spurt - as had been characteristic of the past year. According to Rathbone (2014), the Brazilian economy only grew by 2.3% compared to a remarkable 7.5% growth rate that was registered in 2010. When the world experienced a global recession in 2010, there was also a sharp drop in world trade. In 2010, Brazil’s exports, though, grew by 4.5%, even with the government slowing down macro-economic policies by means of hikes in the interest rates which were changed from 8.

75 in 2010 to 12.50 in 2011 (Bradesco Economics 2014). The government would also introduce ‘macro-prudential’ measures which considerably slowed down credit development. The Central bank would further raise interest rates in 2013 in an attempt to tighten fiscal policies. In the first quarter of 2013, the nation’s GDP growth remained high for the quarter, and would reach the 6.6% figure during the second quarter of the year. Moreover, the first half of 2014 saw the country experience a recession.

From these actions of the Central Bank it is obvious that the national government exerts influence over the fiscal policies made; even if this act could result in the compromising of the nation’s development. In early 2014, inflation would be curbed by hikes in interest rates after a price surge threatened the target set by the government. For all countries that have resource constraints, it is common for growth to be inflationary. Increased economic activity could result in a greater demand for labour, capital, and infrastructural and transportation amenities.

This process then leads to increased prices, thus facilitating inflation. Inflationary growth, though, can only progress until the national economy is able to realise benefits such as capital, increased output, and development of the infrastructure in the midst of rising prices. When a point is reached where potential benefits are surpassed by price increases in terms of value, the citizens will have to contend with a situation where they cannot afford to use the resources. The nation then experiences a recession as its economy’s growth rate goes into decline.

The Government’s Micro Economic Policies Brazil’s government, under president Dilma Rousseff, has not passed regulations that support national growth. It has instituted interventionist policies have served to hinder investors. For example, the government has maintained an expensive currency even while ignoring the creation and repair of the nation’s infrastructure. According to Bradesco Economics (2014), Brazil has some of the greatest disparities in terms of geographic and social inequalities among developing nations.

To accelerate the growth of the GDP, the Brazilian government has invested in an extensive program of investment funds and credit support as long term measures. Still, these programs have not brought much progress because they have not been implemented fully. The Brazilian government has to implement structural reforms that will modernise the economic system. The Brazilian government also has to make changes n regards to dealing in the private sector. The reality is that public investments alone cannot bring about sustained long term GDP growth.

Private development is necessary for this purpose to be fulfilled. The Performance of the Economy When President Dilma Rousseff was sworn into office in 2011, the national economy was performing remarkably well. President Rousseff would support the institutional framework of the Central Bank of Brazil. Moreover, the Central Bank of Brazil is vulnerable to the influence of the present government in regards to the institution of fiscal policies. To improve Brazil’s economy, the nation’s government has to generate institutional reform so that the sCentral Bank moves beyond visualiing price-stability targets and finds more ways of dealing with inflation.

The Brazilian government has maintained low inflation rates by keeping the prices used in state-run services at an all time low. When recessionary conditions surpassed the estimations of the Central Bank, there was a great increase in public debt. Rousseff’s second term has negative implications for the nation because it means that policies that encourage public spending and economic development that is state centred is likely to remain. To further promote growth, the Brazilian government may have to institute measures such as additional trade with partners outside the ‘Common Market of the South’ nations- which are also known as the Mercosur.

Even though this could bring about a considerably increased output, it would be contrary of the present government’s political and economic policy. Conclusion It is evident that there have to be changes in economic as well as political policy for Brazil to maintain the growth rates that were seen just a few years ago. There also have to be regulatory changes made by the Central Bank of Brazil so that it is no longer subject to political influence from the highest office in the land. Furthermore, the reforms effected on financial regulations and monetary policies should not be supportive of any political factors commonly identified within the nation, but should be autonomously created.

References Bradesco Economics. (2014) Weekly focus- the detrending gap, Sao Paulo. Leahy, J. (2014) ‘Race for Brazil’s driving seat’, The Financial Times. Rathbone, J. P. (2014) ‘If Rousseff wins, look out for a term of muddling through’, Global Insight.