Brazil president and the Peter Principle

29 Aug 2015 | Author: | No comments yet »

Another big decline in GDP.

BRAZIL’S GDP shrank by 1.9% in the second quarter of 2015 compared with the previous quarter, the biggest decline by that measure since 2009. Brazil’s government is studying ways to revive a tax on bank transactions as it struggles to reverse the budget deficit and prevent a credit downgrade to junk, Finance Minister Joaquim Levy said. Two-thirds of Brazilians polled say they want to see her impeached because of a massive corruption scandal and what is widely perceived as mishandling of the economy.

Reports in newspapers such as Folha de Sao Paulo that the government would revive the tax met with criticism this week, as lawmakers including Senate President Renan Calheiros said Brazil needs to cut spending before it raises taxes any more. The drop was slightly larger than consensus forecasts of private economists published by the Central Bank, and prompted many to take an even gloomier view or prospects for the globe’s seventh-largest economy. “We are nudging down our forecast and now think the economy will contract by 2.5 percent this year,” the London-based firm Capital Economics wrote in a Friday research report, noting that previously it forecast a 1 percent drop. “As expected, the driver was a complete collapse in domestic demand … This is a shocking report.” Like most Latin American nations, Brazil has been hurt by the plunge in commodity prices and the slowdown in China, which has been a big buyer of Brazil’s soy, iron ore and other commodities. The new tax on everything from bank transfers to cash withdraws could raise as much as 80 billion reais ($22 billion) next year, a person with knowledge of the government’s discussions said this week. However, Brazil’s economy depends far less on trade than most nations in the region, with exports and imports making up just 27 percent of GDP according to the World Bank.

She pushed curbs on payroll-tax breaks through Congress, which will help cut the fiscal deficit; the government also said it would close ten of its 39 ministries. Analysts are worried by recent reports that her vice-president, Michel Temer, a member of the PMDB, is giving up the job of co-ordinating the government’s dealings with Congress.

Rising inflation, unemployment and tightening personal credit have added to souring consumer confidence. “I know that we’re passing through difficulties. Many of you are scared, you think that we’re in an uncertain situation, you feel that inflation is still too high and you fear losing your jobs,” she said. “I want to say that my government thinks of two things: In how to increase employment, to guarantee that the country returns to growth, and in how to reduce inflation, because we know that inflation erodes the income of the worker.” Inflation for the 12 months ending in July stood at 9.56 percent, the government reported earlier this month. On GDP, the government’s IBGE bureau said the biggest second-quarter drop took place in the industrial sector, where construction output fell 8.4 percent. That’s largely because the nation’s biggest construction and engineering firms have been implicated in a massive kickback scandal at state-run oil company Petrobras. Since then, most of the firms in the construction sector have been shut out of credit markets and are cash-starved and unable to complete projects or begin new ones.

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