December 28, 2018

THE CHICAGO WAY:

Chile Eyes Business Opportunities in Bolsonaro's Brazil: If Brazil's new government liberalizes its economy as vowed, it may also seek new and more dynamic trading partners like Chile and the Pacific Alliance. (Rodolfo Vilches, 2018-12-27,  WORLDCRUNCH)

Bolsonaro has put the University of Chicago graduate Pablo Guedes in charge of devising his government's economic plan. There are scant details on it for now but we know the country faces a delicate fiscal situation that must be addressed with spending cuts and increased revenues. This would be possible thanks to the privatization of non-essential government companies, which would exclude oil giant Petrobras and various energy-sector firms.

There is also strong budget pressure from the country's costly pensions system, which threatens to increase the fiscal deficit that is already close to 8% of GDP per year. This makes Brazil's access to international credits more costly, so the new government will likely put a pension reform among its priorities, increasing personal contributions and raising the retirement age with appropriate incentives.

Brazil also has considerable room for growth when it comes to trade. International trade represents for example only 23% of its GDP, in contrast with 44% and 57% for Peru and Chile respectively. Bolsonaro has more than once shown an interest in taking the country closer to the Pacific Alliance, a Latin American liberal trading block that is in clear contrast with the protectionist approach that has dominated Mercosur. Brazil would have to leave behind the protectionist approach if it wishes to develop an open trading policy.

The announcement that Bolsonaro's first visit abroad will be to Chile, not Argentina, Brazil's traditional trading partner in the region, shows the new administration's liberal economic inclinations and greater regard for the national interest in seeking pacts and deals. That will mean unshackling itself from the commitments Mercosur membership implies. Brazil will also seek to strengthen its position as a recipient of foreign investments, which requires boosting market confidence in the country. That should help boost internal demand, create jobs and make inroads into a current unemployment rate of 12%.

Posted by at December 28, 2018 1:37 PM

  

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