The Brazil Under Dilma Taskforce report

John H. Welch, an economist and economic strategist with an impressive résumé for his work in and regarding Brazil, has written an interesting report just released, avaliable here. The idea of the report is to dig into Brazil's economic situation and determine whether, after one year in office, President Dilma will be likely to reform the economy, leave it be, or take it back in time to the "failed policies of the 1970's".

Key takeaways:
-In Welch's view, the current Brazilian administration's view of inflation is wrong. Currently the finance minister insists that rising inflation is the result of supply shocks, that will work themselves out as supply expands without monetary intervention. However, Welch purports to show (or perhaps does show - not being an economist I can't really say how right he is) that it is in fact demand-driven, implying that the failure to raise interests rates could result in a continuation of the internal consumption boom and thus worsening inflation.

-The author also pans the 2011 decision to raise taxes on imported cars as a response to the rising value of the real (and thus the falling price of imports in reais), rather than addressing underlying competitivity problems. The same goes for Brazil's newfound habit of accusing China of dumping. For Welch, the opening of trade since the 1990s has been so important to Brazil's recent success that these recent anti-trade positions threaten to scupper the country's gains. He calls for more privatization of the economy as well.

-Finally, government spending falls under his sites - though Dilma has made some attempts to reign in Brazil's ever-increasing budget, it seems it won't be enough for the country to maintain a budget surplus and invest in infrastucture if more aggressive action isn't taken. Welch calls for social security reform (passed under Lula in 2003 but never implemented - and also which I wrote about in a bit more detail recently), but also supports Dilma's attempts to suppress increases in the minimum wage. On the other, savings and investment are simply too low to support solid growth in the future. After some economic wizardry, Welch contends that Brazil is not likely to manage its goal of a 4.5% GDP growth rate in the coming years.

After some positive and negative points, the reader gets the impression that more of the same can be expected. Brazil will grow, but won't risk serious reform to really meet its potential.