Among the measures announced on 19 January, designed to raise an extra R$20bn (US$7.69bn) in government revenue, Levy reintroduced the Cide tax on fuel, which had been zeroed since 2012, though initially the increase is only valid for the next 90 days. The PIS/Confins tax on fuel, which helps finance social security, will also be increased. Levy also raised the IOF, a transaction tax on credit to individuals, from 1.5% to 3%. Imported goods will now be taxed at 11.75%, up from 9.25%. All of these increases will have a direct impact on the Brazilian consumer and on inflation. Some analysts are now predicting inflation of 7% or more for 2015.
With this in mind, the monetary policy committee of the central bank, Copom, voted unanimously to raise the Selic, the benchmark interest rate, by a further 50 basis points on 21 January. The move was widely anticipated by private sector economists, and helps to bolster yet further the government’s new found predilection for balancing the books. The Selic is now at its highest rate since July 2011.
Alexandre Tombini, the central bank president, has indicated he wants to end 2016 with inflation running at 4.5%. Currently running at just over 6.5%, there may be more pain to come if the economic team sticks to its target.
The International Monetary Fund (IMF) predicts a gloomy few years for Brazil. Its last forecast, in October 2014, put growth for 2015 at 1.4%, above the government’s own, more modest, assessment that 0.8% was more likely. Now, the IMF has cut its forecast drastically, and expects growth of just 0.3% this year.
The economic policies of President Dilma Rousseff’s government are starting to come under fire from her own side. On 20 January, the Fundação Perseu Abramo, the think-tank set up by the ruling left-wing Partido dos Trabalhadores (PT) in 1996, criticised Rousseff’s “conservative and orthodox economic policy-making”.
Given Levy’s friendship with Rousseff’s rival for the presidency, Aécio Neves, such criticism is to be expected, but Rousseff’s other ministerial picks seem almost designed to alienate the remnants of her left-wing support base. In the latest snub to the environmentalist and landless campaigners that once formed the PT’s ideological bedrock, Rousseff has accepted an offer to be the maid-of-honour to Katia Abreu, the agriculture minister nicknamed the “chainsaw queen”, and one of a handful of ministers to be booed during the President’s second inauguration.
Energy crisis
If the prospect of rising prices and taxes were not unpalatable enough, Brazil is currently facing an energy crisis in the midst of a severe heatwave. On 20 January, Brazil was obliged to import energy from Argentina during a period of peak demand, following a blackout a day earlier that hit 11 states and the federal district.
With reservoir levels across Brazil at record lows, lower even, on average, than in 2001, when rolling blackouts had a major impact on Brazilian productivity, states in the wealthy south-east of the country are struggling with supplies. Eduardo Braga, the energy & mines minister, insisted that the blackouts were due to a failure in transmission and not something more fundamental. Still, he also called on God to bring Brazil some rain (see sidebar).
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