Low growth can be long-lasting

The average expansion of the Brazilian GDP in the last four decades was much lower than the average for emerging countries, notably those in Asia. The expectation for the coming years is even less encouraging, even after the transformations of the last decades.

Unrestrained inflation, which for a long time justified low growth, is part of the past. The control of the exchange rate at an appreciable level, considered for a long time as a reason for the fragile performance of the economy, no longer exists, despite interventions in the spot and foreign exchange swap markets. Democracy and political freedom, important factors to stimulate growth, are already consolidated.

However, there are areas that need major progress. The business environment, an obstacle to further economic expansion, has evolved little. Violence remains high, which reduces the flow of investment and tourism. Legal risks remain exaggerated, as lawsuits take time and are subject to many appeals - it is not uncommon for lawsuits against the federal government to take more than 20 years to be concluded.

Low trade openness and non-trade barriers continue to hamper international trade and the incorporation of technology into local products. At the same time, the high tax burden and the complex tax structure distance the country from global production chains. A wide opening would greatly increase productivity in the economy. However, a unilateral reduction in import taxes would hardly be accepted by most members of the government and affected sectors.

The country's peculiarities have generated more restrictive financial conditions than in mature markets. Despite advances in private credit and variable income, long-term financing continues to be concentrated in state-owned banks, particularly the Brazilian Development Bank (BNDES), even after interest rates on loans were matched to the cost of public debt. The deregulation of the credit market has yet to evolve so that state-owned institutions only complement a consolidated private financing structure.

The fiscal issue has become more relevant in recent times in the debate on growth due to the recurrent primary deficit and the increase in public debt. At the same time, as determined in the Constitution, several expenses are linked to the collection of some taxes, while others are indexed to inflation. In an environment in which the spending cap limits the expansion of total spending, the automatic expansion of the mandatory...

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