2. Agenda Why are Brazil and Argentina important ? Brief political and economic history Current challenges and policies Sovereign debt restructuring Outlook Questions
26. Questions Given today’s economic situation, do you think the problem of “moral hazard” will drive more nations to look for debt restructuring deals? Now that commodity prices have fallen, can Brazil still continue to prosper or should BRIC become RIC? Can a nation with a record of default, ever be able to attract quality FDI again?
Editor's Notes
Institutions such as the central bank were obviously not very independent and highly influenced by the government’s irresponsible policies. Accommodating fiscal expenditures by printing money with no revenues to match created a dangerous hyper inflationary situation. Inflation indexed contracts pushed prices into an upward spiral. Earns reputation as the ‘World’s champion in signing unfulfilled agreements with the IMF.’
However, it had some short comings, -Stability and high interest rates attracted large flows of FDI-Overvalued currency & high income payments drove large current account deficit -IMF opened credit line to contain currency crisis-Forced to let exchange rate float in 1999-Depreciation provides major boost to Brazilian exports 99 -02
Lula: Mixed-race; factory worker to union leader. Represented the struggle of Brazilians; Many believed he would plunge Brazil into a further crisis..Macroeconomic stability: Higher interest rate to fight inflation; Set ambitious surplus targets; Swap Dollar debt for domestic currencyExport Promotion: Regional ties and G-20; WTO negotiating power; Chinese demand – the Hand of GodWealth Redistribution: Cost only 1% of GDP – educate children, help old and handicap, increase purchasing power thro doubling of min. wage; Gini factor much improved – to lowest level in 05Brazil has used solid global demand, surging commodity prices and elevated liquidity to lower external indebtedness, smooth its debt maturity profile, and improve currency and interest rate dynamics.
The government has been more responsible with its fiscal and monetary policies. It has succeeded in reducing the debt burden and is less prone to currency movements now.
Opening, running and closing a business in Brazil is extremely challenging. More structural reforms are needed to make brazil a better place to do business for both international firms and its own people.