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Brazil Economy Update: Austerity Plan Alone Won't Fix Recession, Analysts Say

By Brianna Lee

"What Brazil ultimately needs is a pro-growth agenda that will end this recession...You can’t cut your way to growth," comments AS/COA's Brian Winter.

Brazilian lawmakers are in a high-stakes tug-of-war over an austerity plan aimed at plugging a gaping hole in the budget that threatens a chain of ratings downgrades. The program announced this week is a last-ditch effort to restore some confidence in President Dilma Rousseff’s government, which has been pummeled by relentless bad economic news this year.

But analysts say austerity alone is not Brazil's ticket out of a recession that's been deepened by slowing Chinese demand for its exports. Business groups have long been calling for large-scale fixes to make it easier for companies to operate in Brazil, in the form of downsizing labyrinthine tax and outdated pension systems. With public faith in Rousseff at an all-time low, however, they say it may be too late for her to tackle the roots of Brazil’s economic crisis and pull it out of its gloom....

...“What Brazil ultimately needs is a pro-growth agenda that will end this recession,” said Brian Winter, policy director at the Americas Society/Council of the Americas, a think tank in New York City, who spent a decade as a Brazil correspondent for Reuters. “You can’t cut your way to growth.” The sorely needed measures come in the form of long overdue systemic changes that would make it easier for businesses to operate in the country, Winter said...

...Rousseff delivered a proposal in June to gradually scale back Brazilians’ access to full pensions, which observers saw as a temporary fix to plug a deficit. But larger-scale changes still haven’t been a priority, Winter said. “The problem is that right now, you just don’t hear any indication from the Rousseff government that they’re willing to take up these reforms,” he said. “It doesn’t depend just on Rousseff, but it has to start with her...”

Read the full article here.

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