Saturday, October 10, 2015

Brazil: Current environment is an opportunity for reforms – Wells Fargo

FXStreet (Córdoba) - Eugenio J. Alemán, Senior Economist at Wells Fargo Bank analyses the current crisis in Brazil and it shows that it can represent an opportunity to introduce major structural reforms.

Key Quotes:

“The economic boom hid the need for major reforms and supported a temporary renaissance of sorts that has been cut short. However, as we have argued in the past, the current depreciation of the currency will go a long way to help Brazil come back from the current economic environment faster than what markets seem to be expecting.

“We do not want to underplay the seriousness of the current economic and political crisis in Brazil (…) The country has already gone through an impeachment process and the end of that impeachment process saw the implementation of the Plan Real in 1994, which reintegrated the Brazilian economy into the global economy through the implementation of macroeconomic policies that allowed the country to de-couple from its past. Thus, although this process is going to be painful, it will help open the doors to continuing the path of reforms”

“Brazil has, once again, fallen from grace, as it has done so many times in the past. However, with the loss in investment grade classification, the country has an opportunity to revive its economy by becoming more competitive. The current depreciation of the currency will help to achieve this goal, but it will not be enough. Brazil has to put forward a long overdue agenda of structural reform that was cut short by strong economic growth during the first decade of this century.”

“Although it is very difficult to know how the current political crisis will end, the current environment is a fortuitous opportunity to move in the direction of important reforms.”

“Once again, trying to figure out how Ms. Rousseff and her party are going to get out of this situation unscathed looks challenging. The ability of the political system to tackle the arduous reform process will determine the ability of the Brazilian economy to recover its importance among emerging markets and the broader global economy.”
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