RE: "An Ever-Deeper Hole" Image Source: brazilbeacon.com

RE: “An Ever-Deeper Hole”

By: Bilal Maneka, Research Associate at the Council on Hemispheric Affairs

To the Editor:

In “An Ever-Deeper Hole,” H.J mentions some of the factors that have put Brazil’s “federal finances under terrible strain.” The article seems to propose that the chief source of fiscal difficulties is excessive spending on poorly designed social welfare programs. However, numerous instances of political and financial corruption by government officials and overspending on preparations for the 2014 FIFA World Cup and 2016 Olympics are in fact among the principal causes of Brazil’s present budget problems.

In 2011,Transparency International’s global Corruption Perception Index ranked Brazil’s public sector as the third most corrupt in South America. Additionally, the BBC reported that instead of solely using private funds as promised, the Brazilian government has relied upon public funds to cover 90 percent of the cost of preparations for the World Cup. The BBC also has reported that Brazil’s stadiums are among the most costly in the world. The one in Brasília will, for example, “cost…around £380m,” the BBC reported. The Brazilian government is spending well beyond its means on these events.

Inflation is becoming an issue too. While it is true enough that the World Cup could boost Brazil’s economy by attracting tourists from around the world, if Brazilian prices keep rising, then even the tourists may be reluctant to come. The federal government needs to organize its public spending wisely and in a timely manner if there is any hope of slowing inflation, currently rising at an annual rate of 6.50 percent. Economic theory suggests that budget deficits and inflation worsen when the government borrows too much from the central bank. One way to control expenditure would be to ensure the central bank’s independence such that the treasury cannot borrow indiscriminately.

Brazilians have expressed their extreme anger by protesting on the streets over recent price hikes in public transportation fares. The protests now taking place in Brazil demand that the government restrain from spending blindly on World Cup overhead. The protestors believe that the funds could be better expended on healthcare, education, and other basic needs.

The protests and sense of outrage in Brazil are not yet quite at the level of those in Turkey, but they should be an early signal to policymakers to wake up and deal with the country’s troubled public finances.

Sincerely,

Bilal Maneka, Research Associate at the Council on Hemispheric Affairs

In response to the Economist article: “An Ever-Deeper Hole”

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