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Monica de Bolle

Monica de Bolle

Monica de Bolle, nonresident senior fellow at the Peterson Institute for International Economics since March 2015, is an adjunct professor at the School of Advanced International Studies at Johns Hopkins University and professor of macroeconomics at the Pontifical Catholic University of Rio de Janeiro (currently on leave), as well as managing partner of Galanto | MBB Consultants, a macroeconomics advisory firm. Named as "Honored Economist" in 2014 by the Order of Brazilian Economists for her contributions to the Brazilian policy debate, de Bolle focuses on macroeconomics, foreign exchange...

Articles by Monica de Bolle

It’s about to get even more dangerous in largely unvaccinated US states

June 23, 2021

Just as Americans are returning to their normal lives, a cloud is gathering in the form of reports that a “variant” of SARS-CoV-2, the virus that causes COVID-19, is spreading in the United States. Dr. Rochelle Walensky, director of the Centers for Disease Control and Prevention (CDC), is warning that the Delta variant could soon predominate in the United States, making those already vaccinated somewhat more vulnerable to the disease. But the main threat is to localities where vaccination rates are low. Policymakers must redouble efforts to vaccinate all Americans now or risk having to reimpose mask and distancing rules later this year.
The CDC estimates that the Delta variant is responsible for 20 percent of positive COVID-19 tests in the country. Missouri and Kansas have so far been the

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A billion COVID-19 vaccine doses are only the first step

June 14, 2021

The Group of Seven (G7) countries’ recently announced target of donating 1 billion doses of COVID-19 vaccines to poor and middle-income countries was certainly welcome news. But if the doses are not matched by a buildup of infrastructure to administer them, accompanied by technical assistance to help poor countries mount mass immunization campaigns, the goal of taming SARS-CoV-2, the virus that causes COVID-19, will remain out of reach. A sweeping reform of the COVAX (short for COVID-19 Vaccines Global Access) vaccine distribution criteria is also needed. Health authorities should try to focus as much as possible on messenger RNA (mRNA) vaccines (e.g., Pfizer-BioNTech and Moderna), which offer superior protection against known viral variants compared with viral vector and inactivated virus

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Current vaccine proposals are not enough to end the pandemic

May 26, 2021

The International Monetary Fund (IMF) has recently called for an accelerated global effort to distribute vaccines to end the COVID-19 pandemic. That step is most welcome because, as highlighted here and here, past official statements by world leaders have fallen short of delivering specific policies to reach desperate populations, particularly in low- and middle-income countries. The IMF was also right to recognize that the cost of containing the COVID-19 pandemic is far less than the overall benefits for the global economy of full vaccine coverage. But the IMF could have gone further by recognizing that the inefficient vaccine allocation rules currently in place must be replaced by new cooperative institutional structures and more concrete steps by the Group of Twenty (G20) countries.
The

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Novel viral variants: Why the world should prepare for chronic pandemics

February 22, 2021

Even with the alarming spread of variants of SARS-CoV-2, the virus that causes COVID-19 (short for coronavirus disease 2019), most economists, most policymakers, and perhaps most people have been assuming that at some point the pandemic will end, and life will resume as before. But what if it does not? Experience with HIV/AIDS and other precedents indicates that these disease events can turn from acute to chronic without going away. The reason lies in the extraordinary mix of virus characteristics, medical science, an interdependent global population, ease of global travel, social behavior, and political missteps and miscalculations—a mix that also caused SARS-CoV-2 to spread so quickly in our globalized era.
COVID-19 is only the latest example of an unexpected, novel, and devastating

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Memo to the Inter-American Development Bank on Latin America’s health, economic, and political challenges

December 17, 2020

Background: The COVID-19 pandemic struck Latin America in late February 2020. Governments in the region had time to adopt public health strategies, economic rescue plans, and policies to protect millions of informal and vulnerable workers throughout the region, but institutional weakness hampered their efforts.
As a result, the impact in Latin America has been widespread and tragic. By mid-December, the region’s five largest economies combined (Brazil, Mexico, Colombia, Peru, and Argentina) registered 12 million cases of COVID-19 and hundreds of thousands of deaths—25 percent of the global death toll of 1.6 million people. Brazil alone is the second country in the world (after the United States) with the most deaths. More than 180,000 people have perished in the past 10 months. The numbers

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Latin America’s Troubles Prove that Economic Growth Does Not Guarantee Political Stability

November 26, 2019

The flames of political instability have lately consumed Peru, Ecuador, Chile, Bolivia, and Colombia, following upheavals earlier in Venezuela and Brazil. Economic factors have always played a role in igniting unrest, and many Latin American countries enjoyed prosperity resulting from a commodity boom that began in the early 2000s and went bust a few years ago. But something more complex better explains recent events in Latin America: the fact that economic growth did not bring social mobility in the rigidly segmented societies in Latin America.
While it lasted, the commodity boom raised living standards and enabled many middle-class Latin Americans to enjoy higher economic status. Some studies have shown that the commodity boom enabled nearly 80 percent of Latin American citizens to move

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Let’s Look at the Evidence on Tipping Points in the Amazon Rainforest

October 31, 2019

In the face of mounting scientific evidence that the Amazon rainforest is at grave risk because of climate change, President Jair Bolsonaro’s government continues to deny reality. The most recent example came in October with a letter from the Brazilian embassy in Washington to the Peterson Institute for International Economics, challenging the facts presented in its Policy Brief citing expert conclusions that the Amazon rainforest is nearer than generally realized to a “tipping point” beyond which it may be impossible to save it from destruction. That evidence is reviewed in this posting.
The tipping point is a threshold beyond which the rainforest can no longer produce the rainfall it needs to sustain itself. Once the threshold is crossed, climatic and environmental changes develop

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The Spring of Latin America’s Discontent

October 29, 2019

The violent demonstrations in Latin America in the spring of 2019 have prompted many theories about why so many protests have taken place spontaneously and at the same time. Some have asked: Was this a sudden eruption of hopes for a democratic revival? Unfortunately, the answer is a qualified no.
The discontent of recent weeks—perhaps years if we include the mass demonstrations in Brazil during 2013—has been spurred less by rising hopes than by what one might call the “postcommodity boom syndrome,” that is, the crushing of hopes for prosperity that had been engendered by the 2004–14 period of rising commodity prices, which had lulled the people of Latin America into a false sense of security about their economic future. The commodity bust has frustrated expectations, particularly among the

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A Carbon Tax for the United States?

September 30, 2019

Any debate about global warming leads inevitably to proposals for a carbon tax as one of the most powerful tools in the arsenal to combat it. In January 2019, a bipartisan group in the US House of Representatives introduced H.R. 763, the Energy Innovation and Carbon Dividend Act of 2019, which would pave the way for a carbon tax on fuels that emit greenhouse gases into the atmosphere. But, because everybody would face the same price increase, low-income households would be hit harder than richer households, making the measure no less politically treacherous than past proposals that have come and gone. To eliminate or reduce the burden of inequality caused by the tax, governments should design compensation mechanisms to accompany it.
Alongside carbon markets, where carbon credits are traded

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Right-Wing Nationalists Tend to Deny Climate Change

September 20, 2019

Brazilian president Jair Bolsonaro’s stumbling response to the fires in the Amazon rainforest raises an important question: Are right-wing nationalists more inclined than other politicians toward denying the existence of global warming? The question has received only modest attention in academic research on the rise of extremist movements around the world. In a PIIE Working Paper published in August 2019, Jeromin Zettelmeyer and I measured the rise in economic nationalism, showing that it has become increasingly widespread and linked to populist movements, but the paper did not focus on political parties’ stances on climate change. My analysis of the most recent political party manifestos since the publication of that paper suggests that climate change denial is on the rise among parties

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The Rise of Economic Nationalism Threatens Global Cooperation

September 4, 2019

The coordinated policy response of major economic powers to the global financial crisis  of 2008 prevented an even bigger catastrophe. Now with the risk of another downturn, caused in part by the US-China trade war, what are the prospects for worldwide policy coordination to avert a disaster? Not good, according to research at the Peterson Institute for International Economics. In a recently published Working Paper, Jeromin Zettelmeyer and I show a rise in obsessive nationalist economic policies across the globe, making it more likely that in a crisis countries will go it alone to pursue their narrow self-interests, very likely to the detriment of the world economy at large.
We analyze policy platforms of the largest political parties in the Group of Twenty (G-20) countries (55 parties in

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The Amazon Is Burning. Bolsonaro Fanned the Flames.

September 3, 2019

Global warming is widely and correctly blamed for the fires raging in the Amazon rainforest and elsewhere around the world. But the tragedy in Brazil represents a public policy failure of a more manageable and unforgiveable sort. It is not just the Brazilian inability to fight the fires. The country’s scientists agree that the Amazon fires are mostly man-made, intended to clear land for farming, cattle grazing, and other activities, some illegal. But under President Jair Bolsonaro, the government’s long-standing efforts to curb these illegal activities have fallen by the wayside, with disastrous results.
Bolsonaro took office in January after a right-wing nationalist campaign promising to ease environmental regulations and possibly repudiate Brazil’s participation in the Paris Climate

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Trump and Venezuela: Who Takes Responsibility for a Disaster?

May 23, 2019

The Trump administration’s failed drive to oust President Nicolás Maduro in Venezuela has reached a critical turning point. Juan Guaidó, Trump’s choice to lead the country, is on the run, his main supporters are in jail—and Venezuela faces the world’s worst economic and humanitarian crisis outside of war in modern history.
Government and opposition negotiators have reportedly started to reach a political compromise. But no matter what happens politically to Maduro and Guaidó, the US administration may end up wondering why it was not more careful what it wished for in its Venezuela intervention crusade. That is because someone will have to assume responsibility for rescuing the country from a catastrophe that Washington has aggravated with its worldwide campaign of economic pressure. The

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Trump and Venezuela: Who Takes Responsibility for a Disaster?

May 23, 2019

The Trump administration’s failed drive to oust President Nicolás Maduro in Venezuela has reached a critical turning point. Juan Guaidó, Trump’s choice to lead the country, is on the run, his main supporters are in jail—and Venezuela faces the world’s worst economic and humanitarian crisis outside of war in modern history.
Government and opposition negotiators have reportedly started to reach a political compromise. But no matter what happens politically to Maduro and Guaidó, the US administration may end up wondering why it was not more careful what it wished for in its Venezuela intervention crusade. That is because someone will have to assume responsibility for rescuing the country from a catastrophe that Washington has aggravated with its worldwide campaign of economic pressure. The

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Maduro’s Economic Plan for Venezuela: Back to the 1980s?

August 23, 2018

President Nicolas Maduro of Venezuela has just announced another new series of drastic actions aimed at stabilizing the country’s hyperinflation and crumbling economy. But the plan is reminiscent of the many failed attempts to end the hyperinflations in Brazil, Argentina, and other South American countries in the 1980s. Like those futile endeavors, Maduro’s proposals amount to palliatives that do not address the root causes of Venezuela’s problems. They are bound to fall flat.
There is no quantitative threshold for hyperinflation, but when prices start doubling every four weeks as they are in Venezuela—i.e., when inflation hits 100 percent per month—economists and the population alike know that something is gravely amiss. Although it is difficult to forecast by how much prices will rise

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Argentina: Back to the Brink

May 9, 2018

In a largely unexpected move, Argentina has abruptly called on the International Monetary Fund (IMF) for financial help to shore up its reserves and stave off currency pressures. The action by the government of President Mauricio Macri is hard to square with the fact that a little over a year ago, the country was the darling of the financial markets, having pulled off the sale of a 100-year bond, the so-called “century bond,” taking advantage of the low interest rate environment and investors’ appetite for emerging-market assets. In hindsight, the then much criticized move by the Macri government now looks like a stroke of genius.
How did long-troubled Argentina go from its relatively secure status to a country yet again on the brink of a financial meltdown in such a short period of time?

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How Maduro’s Venezuela Playbook Borrows from Mugabe in Zimbabwe

December 1, 2017

Almost since the day he came into power following Hugo Chávez’s death in 2013, President Nicolas Maduro of Venezuela has confronted predictions of his imminent downfall. Despite his gross economic mismanagement, squandering of oil revenues, threats of a debt default[1] and rising poverty, he has held on. In fact he has recently worked to consolidate power by calling for a new Constitution while persecuting political opponents.
The story of an authoritarian leader actually leveraging the disastrous consequences of his policies to stay in power is not new. Maduro’s playbook resembles that of another dictator—Robert Mugabe, ousted earlier this month as president of Zimbabwe after 37 years in power. Mugabe’s fate was a long time in coming, indicating perhaps that Maduro may not last forever.

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Stumbling Blocks for Brazil’s Economic Recovery as Election Looms

October 6, 2017

Against all odds, the Brazilian economy is gradually recovering. Despite the country’s hapless regime, the enormous corruption scandal, and the substantial fiscal challenges ahead, Brazil has emerged from its worst-ever economic recession, responsible for a GDP per capita drop of more than 10 percent. Authorities and markets have been celebrating these recent trends, as they expect greater economic traction into 2018 will help elect a reformist president next October. The recent recovery and the auspicious tale for next year’s presidential elections should, however, be viewed with caution.
Following two consecutive quarters of positive growth, Brazil has technically exited recession. While such news is welcome, the uptick in GDP was largely driven by factors that are not

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Lesson Learned (Again) from Macroeconomic Populism in Venezuela

April 5, 2017

The Venezuelan debacle presents too many lessons to distill, and the consequences of the sovereign default that will inevitably follow the regime’s complete implosion are uncertain. Nonetheless, what Venezuela’s plight does not leave in doubt is that macroeconomic populism—a set of unsustainable policies to boost growth, employment, and promote income redistribution—sows the seed of its ultimate demise, both economically and politically. May that lesson be heeded across the globe.
After nearly two decades of “Chavismo”—the populist policies followed by Hugo Chávez, who came to power in 1999 and died in 2013 leaving Venezuela to his successor, Nicolas Maduro—Venezuela is crumbling under the weight of its own macroeconomic imprudence. Chavismo rode the oil boom of the 2000s, building up ever greater imbalances that now threaten to crack the regime. That it was able to last so long is no small feat in view of the devastation it has wreaked on Venezuela’s economy.
Up until recently, Venezuela was one of only two countries in South America that had largely bypassed the frequent boom-bust cycles accompanied by hyperinflation seen across the region throughout the 1980s and 1990s—the other country was Colombia.

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Brazilian Misery: A Cautionary Tale for the US?

February 21, 2017

Former President Luiz Inácio Lula da Silva of Brazil has been rising steadily in the polls for Brazil’s 2018 presidential elections, despite facing several corruption charges. Why? Because some Brazilians perceive increasingly that he can make Brazil great again. After all, it was under his stewardship that Brazil experienced the rise of the middle class, falling inequality, substantial job creation, and the shrinkage of the informal economy between 2003 and 2010. Of course, Lula’s record of success was helped by external factors, such as rising commodity prices, and a significant inflow of foreign investments—trends that have more recently reversed. Many Brazilian economists fear that a new Lula government in 2018 will aggravate Brazil’s economic problems rather than turn them around. In arguing against a Lula comeback, some claim that Brazil has turned a corner and must not return to his supposedly failed policies.
But are Brazil’s prospects improving, as these economists claim? The reality is: So far, no.

The figure above shows the misery index for Brazil, the sum of inflation and unemployment. Inflation has come down, but unemployment has risen steadily between 2015 and 2017, the result of years of populist and unsustainable policies under Lula’s second term in office and the administration of his impeached successor, Dilma Rousseff.

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The Truth about Mexico

February 7, 2017

As depicted by the Trump administration, the Mexican economy has flourished under the North American Free Trade Agreement (NAFTA) at the expense of its neighbors, particularly the United States. The trade deficit between the United States and Mexico is often cited by President Donald Trump and his economic advisers as the reason why “jobs have been destroyed” and “factories have been stolen.” Economists generally argue that trade deficits alone do not spur or impede a country’s economic growth—and they do not support the notion that Mexico has benefitted while the United States has languished.
But leaving that point aside, a larger issue looms: Relative to its neighbors, Mexican economic performance over the past 25 years is anything but spectacular. The idea that the country has surged at the expense of its two NAFTA partners is not borne out by the data.
Economic theory suggests that poorer countries’ per capita incomes tend to grow at faster rates than incomes of richer economies because when countries are at an earlier stage of development, returns to labor and capital—particularly capital—tend to be higher than in more developed economies. Put differently, developing economies have more attractive investment opportunities than mature economies precisely because they have yet to reach their full potential.

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Trumped Up? The Mexican Economy in 2017 and Beyond

February 2, 2017

A little more than a year ago, the economic outlook for Mexico was looking up. In October 2015, economists at the International Monetary Fund (IMF) projected growth as likely to improve in 2017, following three years of subpar performance. The Fund’s World Economic Outlook flagship report estimated that average growth of 2 percent in 2013–15 would surge to 3 percent by the end of 2016. The IMF estimated that from 2017 to 2020 Mexican GDP would increase at an average pace of 3.2 percent per year while inflation would remain anchored around the central bank’s target of 3 percent.  
Today the optimism over Mexico’s economy has evaporated and given way to uncertainty aggravated by tensions with the United States over trade, immigration, and the Trump administration’s confrontational approach. Not helping the country’s prospects are the government’s difficulties in advancing its reform agenda of fiscal consolidation, breaking up monopolies, broadening the tax base, and encouraging business investment. Mounting violence and corruption allegations have also been hobbling economic progress.
However, President Enrique Peña Nieto, already politically embattled because of his own missteps, will have to navigate a treacherous negotiation with the North American Free Trade Agreement (NAFTA) partners and face tough political challenges with presidential elections scheduled for June 2018.

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Is the Brazilian Central Bank Coming to Grips with the Country’s Balance Sheet Recession?

January 13, 2017

After months of waiting for the Brazilian Central Bank to move more aggressively on interest rates as the country’s historic recession continued unabated, the monetary authority has finally cut the reference rate (Selic) by 75 basis points and signaled that it is ready to move at this pace over the next few months. Although the monetary policy committee has yet to state its views on the economy and on the drivers for the latest decision, a substantial drop in inflation at the end of 2016 and the possibility that Brazil is mired in a balance sheet recession may have weighed on the verdict to cut more aggressively. While a more intense easing cycle should certainly be helpful, balance sheet recessions are complex and require a lengthy process of deleveraging that hampers a rapid recovery in consumption and investment.
A balance sheet recession is essentially the end-result of a cycle of unsustainable policies that lead to excessive debt build-up in different sectors of the economy. When a credit boom turns into a bust, businesses, households, and even the public sector realize that the liabilities they accumulated during the boom period are no longer matched in value by the assets on their balance sheets. Put differently, asset prices begin to fall when the economy tips into recession, which sets off a rapid deterioration in net worth.

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Why Remittance Taxes to Finance a Border Wall are a Bad Idea … for the US

January 10, 2017

President-elect Donald Trump has adjusted his campaign pledge to make Mexico pay for building a border wall and now plans to ask Congress for funds to build the wall first—and then get Mexico to reimburse the cost. Mr. Trump claims that he can force Mexico to reimburse the United States by “blocking transfers and remittances.” There has been little detail about how this might be achieved, but attempting such a gambit would almost certainly backfire on the United States as well as Mexico.
One possibility for Trump is that the United States would tax remittances from Mexican workers directly. But such a plan, even if it were feasible, could ultimately hurt the US economy in a number of ways, including through a direct impact on US exports to Mexico.
Remittances typically take the form of cash sent by immigrants to support their families in their native countries. Although estimating the exact size of remittance flows is difficult because many transfers take place through unofficial channels, studies by the World Bank and the International Monetary Fund have documented that these flows have been growing rapidly among developing countries in the past few years. In the case of Mexico, registered remittances have increased almost sevenfold over the past decade, as the figure below shows.

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More Lessons from Brazil’s Boom-Bust: The “Populist Paradigm” Revisited

December 14, 2016

The current discussion over the rise of “economic populism” in advanced economies could benefit from a look at a Latin American classic, The Macroeconomics of Populism in Latin America, edited by Rudiger Dornbusch and Sebastian Edwards. Published in 1991, the book still offers many compelling insights into the workings of so-called “populist” macroeconomic policies. An analysis of Brazil’s recent experience, and the origins of its current deep economic crisis, provides useful lessons on what could be dubbed a modernized version of Dornbusch and Edwards’ “populist paradigm.”
As laid out by the authors 25 years ago, the “populist paradigm” can be summarized by a series of features and characteristic phases. Below is a modified, modernized version of the original paradigm, based on the Brazilian experience.
Features
Initial conditions: Policymakers and the population at large are deeply dissatisfied with the economy’s performance. Grave income distribution disparities provide the appeal for a radically different economic program.
No constraints: Policymakers reject the notion of constraints on macroeconomic policy—government budget constraints are often ignored on the premise that if the public sector is able to induce growth, constraints become less binding over time. Idle capacity is seen as providing a leeway for expansion.

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Carried Away? The Art of the Deal, Brazil-Style

December 5, 2016

Over the past week, President-elect Donald Trump grabbed headlines with a deal he struck with Carrier to induce the company to keep about half of the 2,000 jobs it had announced were moving to Mexico. In exchange, the company received some $7 million in tax breaks from the federal government. The president-elect’s particular style of industrial policy might seem novel to Americans, but it was tried just recently in Latin America’s largest economy. Former president Dilma Rousseff, impeached earlier this year, is no Donald Trump—and Brazil is certainly no United States. However, during her first term in office, the government’s attempts at salvaging manufacturing jobs looked much like the recent pact with Carrier.
In 2012, Brazil’s growth was faltering. Manufacturing as a share of GDP, which had been declining over several years, caught President Rousseff’s attention. Although most economists who closely followed the plight of Brazilian manufacturing knew the observed decline reflected both Brazil’s isolation from global supply chains and a fatal lack of competitiveness in traditional manufacturing sectors, the government thought it could restore them to their former glory at the stroke of a pen. The pen came to be called the “Plano Brasil Maior”, or the “Bigger Brazil Plan.

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Gordian Knot: Why Brazil’s Recession Could Last Until 2018

November 30, 2016

Bankrupt states, fiscal crises at all levels of government, rampant corruption scandals, a reform effort that has no immediate effect on Brazil’s fiscal woes, and a resurgence of political turmoil. Six months into the Michel Temer administration, Brazil’s Gordian Knot seems to only get worse, as argued in previous posts. While markets rallied and euphoria soared some months ago, there were clear signs that the political crisis would rear its head once again and that the economy was far from staging the expected recovery. This prognosis has now come to pass, with a remarkable twist: Rather than providing support, Brazil’s central bank is actually making a bad situation worse.
Brazilian states are gripped by a mounting fiscal crisis that looks unsolvable in the short term. A toxic combination of falling revenues and growing expenditures—in 2015, 15 out of the 27 Brazilian states breached the limit of personnel expenditures to current net revenues established by the Fiscal Responsibility Law—have placed many states on the brink of calamity. Some states such as Rio de Janeiro have been postponing expenditures and payments, including those to public servants, others have slashed investment, affecting their capacity to contribute to Brazil’s recovery.

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Lesson from Brazil’s Populist Bust

November 11, 2016

Now that the American presidential election has produced a result that seemed impossible to many experts, driven by a campaign termed “populist” by the media, what is the likely economic fallout for the rest of the world?
A puzzling aspect of the US election aftermath is that stock markets have cheered the victory of Donald J. Trump, sending the Dow Jones industrial average to a new record high, despite earlier predictions (and claims that his economic program might produce a recession).
The world has seen “populist” candidates and policies in many countries produce roller coaster results over many years. The Brazilian political experience of the last decade, which despite very different circumstances echoes much of Trump’s brand of populism to date, is a case in point. So it is worth looking at Brazil’s difficulties for clues to how “populism” can fare in the economic arena.
Brazil’s economic troubles have been a source of much bafflement, both in the country itself and to outside observers.

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Brazil’s Post-Impeachment Economics

September 6, 2016

Financial markets’ renewed fondness for Brazil—the country’s stock market has rallied 60 percent this year—is hard to square with the country’s increasingly worrisome political and economic realities.
While markets bask in the post-impeachment glow following the official ouster of former president Dilma Rousseff, prospects become starker for the Temer administration. Michel Temer, who officially assumed office on August 31, will need to reverse a fiscal deficit of 10 percent of GDP—four times larger than the average during 2009–13—a debt-to-GDP ratio of some 70 percent of GDP, and a drop in per capita GDP of more than 6 percent between 2015 and 2016. To put that decline into perspective, the deep recession has left nearly 12 million people without a job. The unemployment rate has continued to climb, inflation is falling at a much slower pace than Brazil’s central bank expected only a few weeks ago, and protesters are out in the streets complaining about corruption, the impeachment trial, and dismal economic prospects. Worse yet, the impeachment vote itself has opened a can of worms that may do considerable damage to Temer’s frail coalition, putting the ambitious reform effort at risk.
It is impossible to think about Brazil’s economic outlook under Temer without taking stock of the implications of the unusual twist to Rousseff’s removal.

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Brazil: Too Many Hurdles after the Olympic Games

August 5, 2016

As Brazilians shift their attention away from the country’s woes to the 2016 Olympics in Rio de Janeiro, interim president Michel Temer and his economic team will likely receive a two-week respite from growing criticism. Unfortunately, questions and uncertainties will resume in earnest as soon as the closing ceremony is over. Policy priorities include passing urgent fiscal measures to restore debt sustainability, addressing worsening finances, reducing domestic interest rates, and formulating a coherent strategy to privatize state assets. The government also needs to reshape Brazil’s public banks, particularly the development bank BNDES, as well as decide whether the public mortgage lender, whose balance sheet has ballooned over the last several years as loan delinquencies rise, needs cash injections or a recapitalization from the government. Even if many of these reforms are not carried out as intended, the Central Bank should consider reducing interest rates sooner than it has so far indicated.
Brazil is facing its second consecutive year of falling GDP, marking the country’s worst recession on record. The International Monetary Fund (IMF) and the Brazilian authorities have recently revised GDP projections to a contraction of 3.3 percent in 2016, a lesser decline than previous estimates. For 2017, the IMF projects growth of only 0.

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