Is R$10 billion in cuts enough to cool down the economy?

The announced cuts of R$10 billion in current spending this year will not be enough to contain possible overheating of the Brazilian economy, says Fabio Pina, an economist at the São Paulo Commerce Federation (“Fecomercio”) (whose associates do business in Goods, Services and Tourism) . Pina believes that only a “drastic reduction” in current public expenditures will enable the country to balance the budget and break what he calls the “pernicious cycle of using rising interest rates to contain inflation.” The way to resolve the problem, according to the economist, is with a tax/fiscal reform, but that seems to be “a dream difficult to achieve.”
 
Fabio Pina recalls the popular saying that “Brazilians put a lock on the door only after thieves have taken everything ,” noting that for years nearly every economist in the country has been sending the government warnings about the need to cut spending in order to establish conditions for the country to grow sustainably.
 
In his analysis, the Fecomercio economist emphasizes the “growing exaggeration” of current expenditures in the country and believes that an adjustment much bigger than the R$10 billion announced by Finance Minister Guido Mantega is needed, beyond the primary surplus target that was also announced.  

According to Pina, with household consumption on the rise and business investment  evolving, “it is natural that balancing the economy requires containment of government expenditures. But what happens is that instead of the government celebrating increased consumption and investment, public officials are losing sleep because of their inability to contain their own costs,” says Pina. 

As a result, he says, there is tremendous pressure on the trade balance and services, along with inflationary pressures. And so, hasty, unplanned measures to contain costs are announced. “Hopefully, we are not going back to the times of emergency shock packages that were foisted on the country [in the decade between 1985-95] in vain attempts to resolve extreme economic problems,” concluded Pina.