The Brazilian Economic Crisis

Brazil, a nation with liberal policies like huge capital inflows, liberalization, and high interest rates, has sunk into a crisis which raised a deep concern all over the globe. Press is referring to this ninth largest economy in the world as another global problem. Like most nations in the 1990s, Brazil too tried to approach stabilization by bringing their currency closer to the dollar. This helped the economy as reduced import costs forced domestic manufacturer to keep cost down. But this also required continuous foreign investment. Thus the economy was largely externally dependant and worked well till the global market had ample liquid capital. But as global market went down, automatically Brazilian economy suffered a lot. A current example is the reduction of the money being spent on food subsidies by more than half, affecting greatly the lowest strata of Brazilian population of about 160 million. The result is a nation in a state of recession and the population having low confidence in financial policy makers. Reduced imports of commodities chiefly from EU nations are affecting the neighbouring countries of Argentina and others, which too are net importers. Devaluation are also putting pressure on their economies and whole of the Latin America may fall in a state of depression. (the Brazilian economic crisis) During the inflation period of 1990s, president Collor tried to curb it down by cutting public expenditure. Later economy minister cut down the inflation taxes on the economically lower population, thus helped in increasing their living standards. But the initial strategy of high interest rate and overvalued real, went on for longer than required. This government policy of roping in foreign investor’s’ confidence by high interest rates and stable exchange rates has proven to be wrong. Now the need of time is to formulate new and better policies, in consultation with people and civil societies which aim to bring long term stabilization and promote development. There is very high need to perform scenario analysis and stress testing. (Gabriel, 1999) Bibliography Gabriel, S. (1999, january 14). briefying on Brazil's economic crisis. Retrieved from https://www.mtholyoke.edu/: https://www.mtholyoke.edu/courses/sgabriel/brazil.htm the Brazilian economic crisis. (n.d.). Retrieved from http://www.twnside.org.sg/: http://www.twnside.org.sg/title/brazil-cn.htm