BRAZIL-"That dog can't hunt"

Much ado about nothing

The title of this post is the expression that US rural Southeners use to describe something that won't work. A political advisor might say "It won't fly". An advertising executive might say that "If you run it up the flagpole, no one will salute it." I think any of those expressions will apply to this particular post.

Dilma Rousseff held the 2nd meeting of her 92-member “Congress” of Economic Advisors (the Portuguese word is “conselho” – i.e. council – but a 92-member “council” seems to be a bit too large for its name!)

From the meeting (the photo of which looked more like a meeting of a Congressional committee) emerged the much awaited “fiscal adjustment” program purportedly designed to get the economy moving again and on a path to sustainable growth and development.

The meeting was followed by Dilma’s “heartfelt” request for the return of one of the worst, inequitable taxes ever devised – the infamous tax on financial transactions; the CPMF. She almost sorrowfully observed that it is the “only” solution to the current crisis. (Now if that tax is the onlysolution to Brazil’s fiscal dilemma, Brazil is, indeed, in very serious trouble!)

The measures that emerged from the “meeting”/seminar was the unsurprising array of demand-side measures of low-cost (and somehow unsubsidized) loans from government-owned banks.

As former Minister and economist Delfim Netto observed, the loans might allow borrowers to substitute higher cost loans for cheaper ones without purchasing so much as a single “widget” in the economy. That would not do much to stimulate output.

The program also throws a bone to exporters in the form of pre-embarkation financing. With the devaluation of the Real helping manufactured exports, this added benefit to reduce costs to exporters could prove useful. (You might want to review your transfer pricing policies with regard to outsourced purchases from local subsidiaries.)

Most analysts have come out with rather negative evaluations of the “program” emphasizing the weakness of trying to convince firms and consumers to increase their existing debt levels against an uncertain economic outlook.

In summary, at first glance, the program looks about as exciting as cold oatmeal. I will follow up with more detail (if the above is not sufficient to illustrate the apparent mediocrity of the proposed “program”)