A Brazilian Formula For Massive Economic Mismanagement

Brazilian governments again are guilty of spending too much when exports and revenues were booming. A view from neighboring Argentina, where bad economics is endemic.

Scene from a Sao Paulo slum
Scene from a Sao Paulo slum
Ricardo Arriazu


BUENOS AIRES â€" In the past 35 years, volatility has characterized the economies of Brazil and Argentina, especially compared to other countries, though Argentina's is by far the more unstable. Over that time, Argentina's GDP has contracted 12 times and grown by more than 8% in 11 periods, while Brazil's declined in six calendar years and grew by over 8% just four times.

This volatility is also reflected in the total losses during all the recessions (18.4% in the case of Argentina and 7% for Brazil), as well as in total gains (40% for Argentina and 35% for Brazil).

The fluidity goes a long way toward explaining low levels of investment, anemic average growth rates, high costs, frequent bankruptcies, high unemployment levels and intermittent socio-political crises. It's essential for both countries to pinpoint the factors behind it and forge the social and political pacts needed to mitigate it.

After several promising years of growth and improvements in the population's living standards, Brazil is currently undergoing one of these periodic crises. So far, it's resulted in a decline of more than 2% of GDP, vigorous currency devaluation, intensifying inflation, massive corruption scandals and government support in freefall.

Brazil's historical experience shows that almost all these crises have a similar dynamic: In simple terms, the seeds of each are sown in boom periods that are misinterpreted by the authorities and economic actors.

Price increases on export products amount to a wage increase for employees. Their incomes go up, giving them more to spend. People tend to use these extra earnings to pay debts, to increase production (buying machines, vans, etc.), to spend more on housing, holidays and other consumer goods, and to save more money. It's good both for production levels and employment.

The government also benefits because it takes in more taxes (including export levies), and its foreign accounts improve thanks to the rising value of exports.

The cycle thus reaches its expansion stage: Foreign investors are attracted to a country with improved economic growth and a favorable fiscal balance. They decide to increase investments, both real and financial, in that country, which further boosts its incipient boom.

In that context, many countries are tempted to raise the value of their currencies, and in the case of Brazil, it allowed the country's GDP in dollar terms to rise from $511 billion in 2002 to $2.63 trillion in 2011.

A chink in the armor

This revaluation weakened its external competitiveness but allowed Brazilian companies to buy foreign competitors. The last stage of the expansive phase comes when the government, tempted by growing revenues, augments spending to satisfy the population's needs.

Peace and progress in Rio de Janeiro Photo: Daniel Zanini

Increased spending could be sustainable if it led to more investments, but experience shows that governments tend to increase consumption simultaneously with the private sector. With Brazil, the savings rate declined from almost 20% of GDP to a little over 15%.

But this time, in contrast with the past, debt didn't increase. In the past, crises were more intense because of a tendency in boom times for increased consumption to fuel debt.

The evolution of raw material prices over the last century shows highly volatile behavior but in a long-term setting of relative stability. The broad pattern is of cycles of rising prices inevitably preceding periods of declining prices â€" like now.

The dynamics generated by these price falls are exactly opposed to the conditions described above, in addition to the fiscal and external accounts slipping into deficits and countries facing a painful process of departure of capital, adjustments and political crises.

That is what is happening, and has happened before, in Brazil. The only way to mitigate these cycles is to save in boom times to avoid cuts in the lean years. These savings can take the form of "financial savings," or investments to improve productivity and future output. Brazil didn't do any of this, and will not be able to avoid a decline in living standards.

But it did partially avoid the temptation of becoming indebted, converting part of its debts into other currencies, accumulating considerable reserves and acting early to devalue the real (which reduced the dollar value of the Central Bank's liabilities). And that has meant stronger defenses this time, against the current fiscal and financial crisis.

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Dutch Cities Have Been Secretly Probing Mosques Since 2013

Revelations of a nationally funded clandestine operation within 10 municipalities in the Netherlands to keep tabs on mosques and Muslim organizations after a rise in radicalization eight years ago.

The Nasser mosque in Veenendaal, one of the mosques reportedly surveilled

Meike Eijsberg

At least ten Dutch towns and cities have secretly used a private agency to probe mosques and other local religious organizations, Amsterdam-based daily het NRC reports in an exclusive investigation.

The clandestine operation — funded by NCTV, the National Security Services, the Netherlands' leading counter-terrorism agency — was prompted by the social unrest and uncertainty following multiple terror attacks in 2013, and a rise in Islamic radicalization.

The NCTV, which advises and financially supports municipalities in countering radicalization, put the municipalities in touch with Nuance by Training and Advice (Nuance door Trainingen en Advies, NTA), a private research agency based in Deventer, Netherlands. Among the institutions targeted by the investigations, which came at a cost of circa 500,000 euros, were the Al Mouahidin mosque in the central Dutch town of Ede, and the Nasser mosque east of the city of Utrecht, according to NRC.

Photo of people standing on prayer mats inside a Dutch mosque

Praying inside a Dutch mosque.


Broken trust in Islamic community

Unlike public officials, the private agency can enter the mosques to clandestinely research the situation. In this case, the agents observed activity, talk to visitors, administrators, and religious leaders, and investigated what they do and say on social media.

All findings then wound up in a secret report which includes personal details about what the administrators and teachers studied, who their relatives are, with whom they argued, and how often they had contact with authorities in foreign countries, like Morocco.

Leaders of the Muslim organizations that were secretly probed say they feel betrayed.

It is unclear whether the practice is legal, which is why several members of the Dutch Parliament are now demanding clarification from the outgoing Minister of Justice and Security, Ferd Grapperhaus, who is said to be involved.

"The ease with which the government violates (fundamental) rights when it comes to Islam or Muslims is shocking," Stephan van Baarle, member of the leftist party DENK, told De Volkskrant, another Dutch newspaper.

Leaders of the Muslim organizations that were secretly probed say they feel betrayed. Hassan Saidi, director of one of the mosques investigated, said that the relationship with the local municipality had been good. "This puts a huge dent in the trust I'd had in the municipality," he told the Dutch public broadcaster NOS.

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