Introduction
Macroeconomic conditions on the domestic or international levels may have contributed to the start of an economic crisis. The official reports and lack of inflation that characterized the recent unrest in Brazil necessitated a tight monetary policy, which led to one of the deepest and longest recessions in Brazilian economic history (Holland, 2019). The primary causes of the decline in investment and consumption, as well as the acceleration of unemployment, have been harsh economic conditions, decreasing credit, and political unpredictability. Growth was further hindered by a rapid realignment of regulated pricing and a restriction of monetary policy. The analysis of this problem will create conditions under which potential economic problems can be solved more confidently with an already-known plan.
Recession Policies
Recent policymaking has failed to acknowledge enduring structural issues and turned out to be ineffective, which has weakened the credibility of policy and worsened growth prospects. At both the national and regional levels, making more substantial progress in resolving medium-term structural problems, particularly those involving the fiscal framework, would significantly improve policy credibility and raise the confidence required for the recompense to robust, encompassing, and sustainable growth.
Until there is a greater likelihood that inflation will converge to the central objective, the stance of monetary policy should not alter. It is anticipated that both the recent drought-related inflationary pressures shock and the surge in inflation brought on by controlled price and exchange rate changes will shortly subside. On the other hand, inflation is anticipated to become progressively under pressure due to the consequences of weak demand and the recent discussion rate rise. Nevertheless, there is a chance that high inflation’s knock-on effects will enhance inflationary persistence.
Reducing the expansion of fiscal spending is a crucial and desirable government priority. Unsustainable fiscal dynamics are being caused by progressively onerous requirements on the central budget, which raise borrowing rates for everyone in the industry, limit economic development, and increase government financing demands. This leads to a further deterioration of the dynamics of public debt. The agreed application of the expenditure cap might be a game-changer since it would allow for the consolidation and ultimate reduction of public debt as a proportion of GDP (Orair & Gobetti, 2017). It would also help the long-term structure of federal investments. In addition to the spending limit, the original budget law that is currently before Congress includes a number of one-time revenues through settlements and the sale of specific assets.
Intended Impact
Tight monetary policy should continue until inflationary pressures reach a level that is closer to the middle of the central bank’s spectrum of sensitivity. In this situation, it would be possible to relax monetary policy if fiscal reform and adjustment showed real progress (Orair & Gobetti, 2017). It is encouraging that there are plans to make the central bank’s autonomy and communication more independent in order to strengthen the framework for inflation targeting. A committee made up of all regulatory agencies, the Deposit Guarantee Fund, and the Ministry of Finance should be given a clear and specific authority with clear roles and responsibilities for macro-prudential supervision to increase transparency and personal responsibility and enhance the authorities’ capacity to recognize and address future risks.
Additionally, a separate organization should be granted the right to establish a communication framework that enables prompt and appropriate decision-making in a disaster and routinely assesses the authorities’ ability to react to crisis circumstances. The government is asked to carry out its intentions to improve frameworks for private insolvency, speed up the bankruptcy procedure, and lessen default damages incurred by borrowers. High private industry borrowing risks highlight the necessity of ongoing vigilance and close observation of the state of the business sector and its connections to the banking sector.
The pension system should have undergone complete reform, taking into account the regulations controlling retirement age, actions to improve employment, the expansion of benefits after retirement, and the duplication of benefits. The pension welfare state has supported people who should instead be receiving aid from specific social welfare programs; these initiatives should be prepared to take over if the retirement rules are changed (Orair & Gobetti, 2017). It would be economically prudent, fair, and equitable to bring government servant pension plans closer to those of the private industry.
Actual Impact
Despite the recession’s effects on the profitability of the company management, the banking system’s overall health is still robust. The mission applauds public banks’ efforts to moderate the rate of credit expansion, minimize direct financing of significant businesses with access to the common market, lessen credit market inefficiencies, and improve the capital positions of the two largest and most influential banks (Ku et al., 2020). Financial stability nets are strengthened by boosting the central bank’s immediate liquidity support, upgrading the resolution framework, and streamlining the processes for using the deposit insurance scheme in order to make the banking industry more shock-resistant.
Reforms that facilitate gainful employment and lessen the incentives for casualness foster investment, growth, and the creation of new jobs. Reforms take into account first-time job seekers, a group that is primarily made up of young people and particularly susceptible to cyclical changes. The easing of the minimum wage indexation regulation, which was previously advocated on financial grounds, helps to increase employment among young people (Sicsú et al., 2021). Reducing tariffs and nontariff barriers, changing the rules on domestic content standards, and negotiating free-trade agreements outside of Mercosur all contribute to greater productivity and competitiveness.
Payroll expenses account for a sizable portion of spending, particularly in subnational administrations. It will be crucial to make wise employment and compensation decisions. Reforms are also required in this situation to make it possible to leave the civil service and to make automatic career advancement more logical (Hone et al., 2019). The plan to assist states in regaining control of their finances should include improving institutional ties across levels of the government and passing legislation allowing governments to make intricate expenditure adjustments. State cases are fully covered by welfare benefits and payroll administration rules. It is also essential that states make a definite commitment to enhancing transparency.
Conclusion
After the financial crisis, fiscal policy was one of the topics that generated the most heated debate. On the one hand, officials have been working to boost GDP and stop the jobless rate from rising. With shaky appraisals of their efficacy, fiscal policy views have fluctuated between expansion and austerity. Fiscal consolidation was the only game in town, and concurrently, a complete public policy aimed at alleviating poverty and wealth disparity was in place, driving up government expenditures. Along with a spending cap, changes to benefits, several special tax laws, a plan for commercialization, and a rethinking of the notion of generosity in many social programs, an appropriate governance structure for fiscal policy is welcomed.
References
Hone, T., Mirelman, A. J., Rasella, D., Paes-Sousa, R., Barreto, M. L., Rocha, R., & Millett, C. (2019). Effect of economic recession and impact of health and social protection expenditures on adult mortality: a longitudinal analysis of 5565 Brazilian municipalities. The Lancet Global Health, 7(11).
Holland, M. (2019). The fiscal crisis in Brazil: causes and remedy. Brazilian Journal of Political Economy, 39, 88-107. Web.
Ku, S., Cavusgil, S. T., Ozkan, K. S., Pinho, C. R. D. A., Pinho, M. L. C. D. A., Poliakova, E., & Sharma, S. (2020). The great lockdown recession and international business. Rutgers Business Review, 5(1), 113-135. Web.
Orair, R. O., & Gobetti, S. W. (2017). Brazilian fiscal policy in perspective: from expansion to austerity. In The Brazilian economy since the great financial crisis of 2007/2008. Palgrave Macmillan, Cham. 219-244. Web.
Sicsú, J., de Melo Modenesi, A., & Pimentel, D. (2021). Severe recession with inflation: the case of Brazil. Journal of Post Keynesian Economics, 44(1), 89-111.