The new Brazilian government led by Michel Temer, the former deputy of the suspended president, Dilma Rousseff, has minimal room for error in the weeks and months ahead, argues Wikistrat’s Oren Kesler in this report. The public’s expectations are high and the government is expected to provide impossibly immediate solutions to deep problems.
The Temer government’s first challenge is to restore investors’ trust and confidence. Temer’s appointments of Henrique Meirelles as Minister of Finance and Ilan Goldfajn as President of the Central Bank are a step in the right direction, and have been welcomed among Brazilian and foreign investors alike.
However, a full economic recovery could prove to be an unexpectedly difficult challenge. In the first quarter of 2016, Brazil’s GDP shrank by 1.4 percent relative to the fourth quarter of 2015 — and by 6.3 percent compared to the first quarter of 2015. Overall, Brazil’s economy is set to shrink by 3.7 percent this year.
Many investors consider the next ninety days to be crucial. The new government needs to issue and execute economic reforms to cut the deficit — a task the Rousseff government was neither willing nor able to tackle — and privatize state-owned enterprises, such as hydroelectric dams, airports, marine ports, insurance companies and the postal services.
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A version of this piece also appeared in The National Interest.
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Wikistrat Group Leader