Political and Economic Risk for Brasil - Essay Example

In regards to economic changes they are considered extremely risky, as stated in MarketWatch.com "Brazil has been a rollercoaster for investors lately. President Luis Inacio da Silva's government is embroiled in a corruption scandal, with accusations of accepting bribes in exchange for legislative support" (Kollmeyer 2). Luiz Incio Lula da Silva was elected to the position of President in 2002. After being elected Lula changed many of his initial plans regarding retirement, tributary and labor.

These changes did not go over smoothly with some members of his cabinet and caused further tension. The President believes one the main problems citizens in Brazil face is hunger and has devised a plan to disperse money to underprivileged citizens. Although this act was positive many citizens believed that this was not the most important issue that Lula could have spent money on. One of the most publicized scandals in Brazil occurred when Brazilian Labor Party member Roberto Jefferson admitted he gave bribes to promote the presidential campaign (Wikipedia).

According to the BBC news, "based on a survey of 78 firms conducted in 2003, found that just over half had been asked for bribes by officials responsible for tax collection." The survey also found that more than two-thirds of the firms admitted spending up to 3% of their annual revenues on bribing officialdom, the rest spent more than that. This problem is partially because the Brazilian bureaucracy has always encouraged a flexible guideline to the rules (Plummer). Although the president's ratings did falter for a bit, they are now up again and he is projected to be able to win the upcoming election.

According to the Political Risk Yearbook Lula has taken great steps to enforce social growth but at the same time will be hurt as he tries to maintain policies for foreign investment. PRY also feels that Lula has intentionally stalled some major problems like debt and that will come full circle when elections come around as other candidates will be able to highlight these weaknesses. With stalling these economic issues, it makes foreign traders weary to invest and will cause growth rates to be lower than expected.

Although the trade surplus was healthy in the past years the import prices have risen and therefore caused a deflation in the export growth. This will cause a deficit over the year and by 2009 the deficit is expected to reach 3.3 billion dollars (Political Risk Yearbook 4). In addition to the many problems the president will face come election time, there is an inflation problem that is still prevalent in Brazil. In 2003 Brazil had a 13 percent inflation rate which is the fourth highest in South America (Political Risk Yearbook 8).

In reaction to Lula's actions people have reacted and lashed out against their President. When the President promised to settle families on non-productive land and didn't follow through workers began to "squat" or refuse to leave the land and work to produce goods for their country. Although many of the "squatters" were non- violent they made a stand that affected the