NCPA - National Center for Policy Analysis

As Elections Loom, Investors Hold Little Hope For Brazil

October 11, 2002

Brazil appears poised to turn its back on the lessons of economic freedom and fiscal responsibility learned by most other nations of the globe in recent decades, observers say. Brazilians are expected to elect Worker's Party candidate Luiz Inachio "Lula" da Silva as the country's president Oct. 27.

If that occurs, Brazil's economy could go the way of Argentina -- ending in default. Some international economists fear that, should the worst happen, the International Monetary Fund will rush in to bail the country out. They are urging the IMF, instead, to sit this one out. Here's why:

  • Brazil has natural resources, savvy businessmen, sophisticated economists, rich oil reserves, a ready labor force and its own industrial base -- so default, devaluation, inflation and destruction are not inevitable unless its politicians choose to follow the populist, big government path.
  • Trouble is almost guaranteed if the government agrees to the IMF's austere fiscal policy while also letting the floating currency sink and installing new barriers to growth -- such as higher import tariffs, more intrusive economic regulations and higher taxes.
  • In the end, impoverished Brazilians might rightly see IMF involvement as imperialistic interference.
  • The process will prove to be as dangerously harmful to democratic development as it is paternalistic, observers warn.

Economists have come to view IMF bailouts as a license for politicians to pursue reckless mismanagement and big government.

To put an end to this game, they advise the IMF to sit on its hands this time and let Brazilians figure out how to live with the consequences if bad choices are made at the polls.

Source: Mary Anastasia O'Grady, "A Shocking Proposal: Let Brazil Find Its Own Way," Wall Street Journal, October 11, 2002.

 

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