Brazil’s economic activity grows, IMF hopeful on recovery
November 17, 2016, 4:59 pm

Can Temer successfully implement tough austerity and reform measures without suffering a public backlash? [Xinhua]

An IMF report early Wednesday indicated that South America’s largest economy could be on the verge of a slow and gradual recovery.

The recovery would hinge on a wide array of reforms – including a cap on spending and social security reform – aimed at slashing the government’s budget deficit.

“A strong push to implement the proposed measures on the expenditure side would go a long way towards restoring policy credibility and market confidence with positive effects on investment and growth,” the report read.

Brazilian President Michel Temer has made the reforms a cornerstone of his administration and pledged to work diligently to see that they are passed through Congress.

There is a fear that they may be stalled, as they have done for over a year, as legislators argue about how harsh the austerity measures are on the public.

International investors are also worried that political instability amid ongoing corruption probes could hinder recovery as these would directly and negatively affect consumer confidence.

On Thursday, police arrested former Rio governor Sergio Cabral on allegations of embezzlement. Throughout the year, senior politicians – including former President Lula da Silva – have been the focus of a number of probes.

Even Temer is facing an ongoing corruption investigation.

Stomaching austerity

In late August, Temer announced a $17-billion austerity package comprised of tax increases and spending cuts.

Finance Minister Henrique Meirelles has previously said that the pace of economic recovery would depend on business confidence – as the government continues to work on improving the business climate that would allow the private sector to rebound.

In early November, Meirelles told local media that the economy is ripe for reforms, which could include a proposed cap on government spending, in order to restore long-term growth.

Economists had widely expected Latin America’s largest economy to start growing again in the first quarter of 2017, but so far it appears to be stumbling.

Meanwhile, however, the IMF still projected negative output growth of 3.3 per cent for 2016, with only a slight increase of 0.5 per cent in 2017.

The BRICS Post with inputs from Agencies