Brazil's Economic Crisis: A Tough Road Ahead
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Case Code: ECON065 Case Length: 16 Pages Period: 2015-2016 Pub Date: 2018 Teaching Note: Available |
Price: Rs.400 Organization : - Industry : - Countries : Brazil Themes: Business Economics, Financial Management,Corporate Social Responsibility |
Abstract Case Intro 1 Excerpts
Introduction
In 2016, Brazil’s economy shrank by 3.6%, reflecting its worst annual performance since 1981. This followed a full year of recession in 2015 that hit the South American country’s economy hard. The economic crisis, coupled with the country’s political crisis, contributed to a sharp contraction of the Brazilian economy. Brazil saw a deterioration in its fiscal condition due to the combination of economic stagnation, growing inflation, political instability, public sector incompetency, and a widening budget deficit. Its economic situation had deteriorated to such a degree that credit rating agencies demoted the country’s sovereign debt to junk status in 2015 and 2016. Moreover, corruption and the political instability resulted in a significant drop in investor confidence and had a devastating effect on the Brazilian economy. Most investors felt insecure about investing in the country until evidence of its stability surfaced. The biggest challenges for Brazil at this time were identifying and eliminating fraud and corruption. Although these challenges were considerable, Brazilians remained optimistic, expecting the country’s economic situation to improve in 2018.
After taking over as President of the country in 2016, Michel Temer (Temer) , former Vice President of the country, promised to pull Brazil out of recession and take it into a new future. He passed a law to reel in public spending and proposed some reforms to improve the economy. But like his predecessors, Temer faced allegations of corruption and that led to his growing unpopularity in the country. With his low approval ratings and the opposition within the Congress, it would be difficult for Temer to pass the reforms ahead of the presidential election bid in 2018, experts said. Since the country’s economic crises were caused by the errant economic policy at home, the road to recovery would be a long one, they observed. Against this backdrop, steering Brazil back to a positive growth trajectory was expected to be an arduous task for Temer.
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