Brazil’s economic problems, in a nutshell

It would take true Milei-like ardour to slice through Brazil’s economic troubles. These are caused by a gnarly mix of high public spending, stubborn inflation and low saving. The result is a crippling cost of capital. Some analysts put Brazil’s real interest rate, the BCB’s policy rate adjusted for next year’s expected inflation, at 9% or more. That is higher than in Russia and four times that in peaceful peers like Chile, the Philippines or South Africa. It all starts with the public finances. Brazil’s 65,000-word doorstop of a constitution bars cuts to nominal public-sector wages and links pension, disability and unemployment benefits to the minimum wage, which is adjusted annually based on recent inflation and GDP growth. This ratchet has lifted mandatory spending to 90% of the federal budget. It also perpetuates inflationary pressure. This plus a generous welfare state in turn make Brazilians unwilling to save. At 14% of GDP, the national savings rate is 12 percentage points below the world average. If price rises have regularly eroded your bank balance in the past and the state pays for your health care, school and pension, you may as well spend all the money you make right away—especially if, like most people in unequal Brazil, you do not make much to begin with.

Here is more from The Economist.

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