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![Temer, center, and Meirelles, left, say their goal is to lower public spending and the primary deficit [Xinhua]](http://thebricspost.com/wp-content/uploads/2016/05/254220055_8-e1463920362289.jpg)
Temer, center, and Meirelles, left, say their goal is to lower public spending and the primary deficit [Xinhua]
But significant challenges remain and the new government is unlikely to be able to do away with austerity measures which had proven unpopular in the past.
While the change in government may have been welcomed by the Brazilian Stock Exchange and some in the media, the facts remain that Brazil is going through the worst economic crisis since World War II.
Some economists are calling for caution saying that the country needs a large to-do list to get business back on track and GDP in the black.
The new interim government faces an inflation rate which is shy of 11 per cent, unemployment rates above 10 per cent and economic contraction for the 15th consecutive month.
On Saturday, the finance ministry, now run in the interim by Henrique Meirelles, forecast a record budget deficit of over $48 billion – 56 per cent more than the previous government’s 2016 estimates.
Meirelles, who headed the Central Bank from 2003 to 2010, blamed the former government for mistakenly estimating tax and other government revenues.
Some Brazilians, including the opposition, blame Dilma Rousseff and her cabinet’s fiscal policies for the economic debacle. They also charge her with having manipulated data ahead of her re-election in 2014 to show that a budget deficit was less severe than it actually was.
Her government had forecast a budget deficit of under $25 billion; Meirelles said that the previous government’s calculations were unrealistic.
In early January, the forecast held at 2.95 contraction but now the International Monetary Fund says that contraction will hit 3.8 per cent for 2016.
In 2015, the economy contracted by 3.75 per cent, while it grew just 0.10 percent in 2014.
Weakest economy yet
![Tens of thousands of people have demonstrated in support of Rousseff who was temporarily suspended pending a trial into alleged misrepresentation of fiscal challenges [Xinhua]](http://thebricspost.com/wp-content/uploads/2016/05/254253399_8-300x200.jpg)
Tens of thousands of people have demonstrated in support of Rousseff who was temporarily suspended pending a trial into alleged misrepresentation of fiscal challenges [Xinhua]
Both Meirelles and Temer said that their primary focus is to boost fiscal accounts by curbing public debt growth. One austerity measure at their disposal will be to slash pensions.
If the new interim government believes that the Olympics will inject some much-needed capital into the economy they got another thing coming says global credit ratings firm Moody’s. It says the Olympic Games will benefit host city Rio de Janeiro’s infrastructure and capacity to do business, but any other fiscal advantages nationwide will be too minimal to boost the economy.
Meanwhile, Jorge Arbache, a Professor of Economics at the University of Brasilia, says that many in Brazil believe a new paradigm is in order.
“A new development model is long overdue and the more Brazil procrastinates to recognize it, the greater will the challenges be to ensure a competitive and vibrant economy in the 21st century. A political consensus will definitely help, but, at this juncture, it will contribute, but will not determine better days ahead,” Arbache said.
Thomas Krieger, the regional head for Latin America at Commerzbank, agrees.
“If Brazil is to turn its economy around and get back on the growth path, it must diversify the profile of its export trade,” he says, warning that continued dependence on the export of raw commodities, such as oil, metal ores, and agricultural products, leave Brazil vulnerable to volatile global prices and demand.
The BRICS Post with input from Agencies
