While we’re looking at Greece and the EU implosion, a rather disquieting report in this weeks Economist,
The Central Bank now sees signs of overheating. Inflation, at 0.75%, was surprisingly strong in January, pushing the rate for the past 12 months to 4.6%. The minutes of the latest meeting of the bank’s monetary-policy committee suggest that it will raise its benchmark interest rate in March or April, for the first time since September 2008. Though the São Paulo stockmarket had a poor January, some big share offerings are expected (from Petrobras, the state-controlled oil firm; Banco do Brasil, a state-controlled bank; and OSX, a company with designs on shipbuilding and oil services). Familiar worries about creaking infrastructure are returning. Folha de São Paulo, a newspaper, recently reported that Brazil had to forego $1 billion in export earnings from soya because of congestion in a port in Maranhão state, in the north.
To slow things down a little and to head off a string of interest-rate rises, Guido Mantega, Brazil’s finance minister, said this month that the budget will be pared back, with the aim of posting a surplus for the year of 3.3% before debt payments. He also announced the end of tax breaks on cars and white goods that made up part of last year’s stimulus package.
Withdrawing the stimulus in an election year shows welcome political maturity. But only up to a point: at about 1% of GDP, Brazil’s fiscal stimulus, launched in 2008, was comparatively small. Most of the extra spending went on hiring more public-sector workers and on social-security payments, rather than on building roads, ports or hospitals. Since public-sector workers are close to unsackable and trimming social security is even harder, the stimulus will leave the government’s balance sheet with an enduring hangover.
The lack of appropriate infrastructure is arguably Brazil’s largest hurdle in its goal of becoming a world power. It is impossible for a Latin American country to reach its potential when it neglects the fundamental issue of infrastructure.
Expect inflation, too. Go read the rest of the article – they’re planning a 15% increase in government spending, nearly twice the prior 8%.