BRAZIL-Seek ONLY to survive

Holiday season re-runs

The government announced today that it needs to reduce the primary surplus target for 2016. A target of 1.5% of GDP had been proposed in the initial budget discussions. That was reduced to 1% and later to 0.7%. Joaquim Levy, then-Finance Minister decided that further reductions would be intolerable and that he would quit his job if the 0.7% target was reduced. He was true to his word and when the target was knocked down to 0.5% of GDP, he walked. That was in January.

The first two weeks of February have been entirely consumed by Brazil’s Carnaval celebrations so practically nothing was done aside from dancing in the streets.

Nevertheless, the government has announced that it needs to further reduce the 0.5% target in view of what looks like another year of poor economic performance.

I have been frantically searching for an appropriate metaphor to describe this situation and confess that only the Tower of Babel is remotely like current circumstances.

Consider the following:

• The government only now has figured out that 2016 is going to be a “bad” year;
• That conclusion was based on one month’s performance of the economy;
• Yet, all of the discussions surrounding the construction of the 2016 budget were centered on expectations for a “weak” year;
• It would at least appear that everyone is speaking a different language and no one understands what anyone else is saying;
• The administration announced that a project to re-pave the BR 163 highway that runs from Mato Grosso to Pará (estimated cost R$ 6.5 billion) that was supposed to be completed in 2015 was not completed. Consequently, the government announced that it plans to build a rail line along the same route (estimated cost R$ 10 billion) at the same time that it suggests that it needs to reduce the fiscal surplus target because it doesn’t have the funds to do even what was projected in the budget. So take out an eraser and rub out the R$ 6.5 billion already budgeted ever since last year and write in R$ 10 billion for a net increase in budgeted expenses of R$ 3.5 billion in what is expected to be a “bad” year!

When I was a high school student, I used to work during school vacations painting the walls of a local mental institution. On one occasion an inmate struck up a conversation with me as I painted a wall. He said he was a war veteran and had been confined to the institution to treat “battle fatigue” (now referred to as Post Trauma Distress Syndrome). 

He told me of the rigors of a harsh winter environment and the suffering of his fellow soldiers, some of whom froze to death.

Having several neighbors who were veterans of WWII and having heard their stories, I presumed he was describing the Battle of the Bulge. So, I asked him if he was talking about the invasion of Belgium known as the battle just cited where the allied troops encountered the conditions he was describing. 

He said, “No, I am talking about the invasion of Moscow. I was a soldier in Napoleon’s army!!” Clearly, he was not in the institution simply to treat “battle fatigue”! 

What do you say in that situation other than, “Oh, I hope you resolve your issues”? 

I feel much the same helplessness when confronting the declarations of the current administration in Brazil. The only comment one can make is, “OK, good luck with that!”

Consequently, it is quite easy to understand why the Carnaval revelries are scheduled to continue over this weekend in spite of the fact that the holiday officially ends today – Ash Wednesday! If you can’t beat ‘em, join ‘em.

Analysis:

My entire career has been that of a “business economist” who analyzes the economic environment in which companies “do their thing”. I have a certain amount of pride in my work and the “track record” of my forecasts.

However, I confess that I am less skilled at psycho-analysis than at economic analysis. In fact, I have NO skills in psycho-analysis! I do know that Freud once said that doing the same thing over and over while expecting different results is one definition of insanity. Einstein also observed that you can’t solve a problem with the same mindset that created it.

So, your dominant strategy is to continue “painting the wall” inside a shell of rationality. You must look only to the survival of the enterprise in the midst of policy madness and delusion. 

As with my interlocutor in the mental institution, given his apparent age it is entirely possible that he did participate in the Battle of the Bulge and had created a fantasy to deal with the trauma. 

However, to treat his illness, it would be first necessary for him to accept that he had not been a soldier in Napoleon’s army in the invasion of Moscow. The first step had to be to treat the delusion after which one could deal with the reality that caused it – which may or may not have been the Battle of the Bulge.

As I have observed in previous posts and quoting US economist Herb Stein, “things that cannot go on forever, don’t!” 

Look downrange, pull your management team together, and develop both short and long-term strategies to deal with current circumstances. Develop as many scenarios as you believe plausible, build a timeline along which you expect events to occur, create decision guideposts for each scenario event in your forecast, analyze and re-analyze your scenario(s), and continue moving forward step-by-cautious step. 

The Brazilian Titanic remains dead in the water. It could sink, the passengers could revolt, the crew could be thrown into the brig by a mutiny, the ship could be abandoned as passengers head for the lifeboats, chaos could ensue, or the ship could continue to sit where it is until circumstances change in some other direction. Just make sure you are among the survivors.