BRAZIL-R$ 10 billion worth of "revenge"...

...and still counting

So far, Dilma Rousseff’s “fiscal time bomb” has increased government outlays by R$10 billion. Not to worry, she reportedly plans more! The PT’s concern for the poor and economically disenfranchised knows no bounds!

Industry continues to decline as shown on the table below. Q1 was the worst for industry since 2009.

% Change In Period
Sub-Sector	Vs. Feb ‘16	Vs. Mar ‘15	Cum. 2016	12 Mos.
Capital Goods	2.2	-24.5	-28.9	-28.3
Intermediates	0.1	-10.9	-10.3	-7.0
Consumer Goods	3.2	-8.7	-9.8	-10.0
Durables	0.3	-24.3	-27.3	-21.6
Semi/Non-Durables	0.9	-3.8	-4.5	-6.6
Overall Industry	1.4	-11.4	-11.7	-9.7

It’s going to be a long way back. No matter what the incoming administration might do, it is likely that industrial unemployment will continue to grow in the short-term. This will limit consumption and contribute to a deepening of the recession. I continue to forecast a contraction of 4.0% to 4.2% of GDP in 2016.

Vice-President Michel Temer continues to forge the beginning of a recovery plan that, according to recent statements, is made up of 8 principal objectives:

• Cut budgeted public sector investments by 68%;
• Cut public sector operating expenses (travel, consumption, services, etc.) by 25%;
• Cancel public sector salary adjustments and new hires;
• Reduction of the Political Party Fund from R$ 819 million to R$ 371 million;
• Reduction of 4,000 public sector appointee and non-civil service jobs;
• Sale of 49% of several state-owned companies;
• Set minimum retirement age at 65;
• Reduce the number of presidential cabinet posts from 32 to 20.

The 8 measures are still in the proposal and analysis stage. Temer might also consider ordering an audit of the administration’s social programs (i.e. Minha Casa – Minha Vida (MCMV) and Bolsa Família) to ensure that all beneficiaries meet the requirements for assistance. 

There are reports that MCMV has been the object of “speculation” with individuals purchasing housing units for re-sale. Likewise, Bolsa Família has been reported as being “bloated” with political cronies who do not necessarily meet the requirements for financial need. It’s useful to remember that the actual “management” of those programs is in the hands of local municipal governments the mayors of which are notorious for using them for electoral purposes. 

Thorough audits of the beneficiary lists might allow the government to make the money allocated to those programs go further.

If Temer’s programs go no further than simply identifying what can be done to halt the meltdown and build a base in the legislature they will have served to alert the public (i.e. voters) to the challenges ahead and build a base of popular support for what will most certainly be painful measures.

If Temer can accomplish at least what I have written in the previous paragraph, the stage will have been set for a sustainable economic recovery and the reform of Brazil’s governance “model”.