Tag: brazil

Dilma Announces Spending Cuts in Brazil

The new Brazilian government of President Dilma Rousseff has announced spending cuts of 50 billion reais (approximately $30 billion) this year. This amounts to approximately 1.3% of the country’s estimated GDP for 2011. Despite good intentions, that is still a very timid effort in curbing the size of government in Brazil: Total government spending (including state and local levels) runs at almost 40% of GDP.

Perhaps the timidity of the proposal is explained by the fact that curbing the size of government is not the motivation for the spending cuts. Nor is it to avoid a looming fiscal crisis. Brazil’s estimated budget deficit for 2010 was 2.3% of GDP; not good, but still a far cry from the fiscal woes of Europe or the U.S.

Dilma’s reason for cutting spending lies in the helplessness of Brazil’s Central Bank in containing the rise of the real without harming the economy. The real has appreciated against the dollar by 38% in the last two years (thanks in large part to Ben Bernanke’s policies at the Fed).  Efforts to contain this appreciation by intervening in the foreign exchange market and building up reserves led to a rise in inflation, which closed at 5.9% last year. The Central Bank has raised interest rates in order to curb inflation, but at 11.25% they are already too high and constitute a heavy burden on Brazil’s productive sector. Moreover, high interest rates are a magnet for foreign money seeking high returns, which drives up the value of the real even further.

Cutting government spending wouldn’t seem like the favored policy alternative of a left-wing technocrat such as Dilma Rousseff. However, it is the best way to bring down interest rates and control inflation under the present circumstances. It remains to be seen if the cuts do the trick, but they are certainly a positive sign from Brazil’s new president.

Brazil’s Drug Czar: Let’s Look at Portugal’s Experience with Decriminalization

In yesterday’s Brazilian daily, O Globo, Pedro Abramovay, the drug czar of the new Brazilian administration, said that Portugal’s experience with drug decriminalization should be considered as an alternative to Brazil’s current anti-narcotics policy. This comes on top of Rio Governor Sergio Cabral’s call for drug legalization and of former President Fernando Henrique Cardoso’s criticism, along with other prominent Latin Americans, of drug prohibition. By officially weighing in on the side of harm reduction, Latin America’s giant can have a significant effect on the debate over this hemisphere’s drug war.

Brazil Caves

Notwithstanding the efforts of four brave congressmen, the belated concession to reality by House Agriculture Committee Chairman Collin Peterson, and the misgivings of trade analysts including myself, it appears that the “temporary” deal struck by Brazil and the United States in April to ward off Brazil’s retaliation for WTO-illegal U.S. cotton supports is here to stay:

The government said a deal agreed between the two countries in April to head off up to $829 million in World Trade Organization-sanctioned retaliation against U.S. goods would stay in place until a new U.S. farm bill is passed [in 2012]…

“Brazil doesn’t rule out taking countermeasures at any moment,” Roberto Azevedo, Brazil’s envoy to the World Trade Organization, told reporters in Brasilia. “It is just a suspension of this right”.

He said Brazil could retaliate at any time if the United States did not uphold the agreement, but added that Brazil had no interest in retaliating.

“This process of negotiation and reform is better than retaliation that doesn’t bring benefits to anyone in Brazil’s private sector.” [Reuters]

You will recall that the deal includes about $147 million worth of taxpayers’ money given to Brazilian cotton farmers in the form of “technical assistance,” just so we can continue our own insane cotton support programs without fear of U.S. exporters (including holders of patents and copyrights) being hit by retaliatory trade barriers and unpunished piracy.

Brazil in some senses has the right idea, of course. They recognize, correctly, that retaliation in the form of increased tariffs on American imports only hurts their own consumers, hence their stated desire for “negotiation and reform” instead of santions.  But they sure do have a lot of faith in the willingness of Congress to enact reform without serious pressure from, among others, aggrieved trade partners.

I hope their faith and saint-like patience is rewarded. In the meantime, we have (at least) two more years of subsidizing Brazilan farmers in addition to our own.

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Is Hillary Clinton Ignorant about Geography, Fiscal Policy, or Both?

Hillary Clinton recently opined that Brazil was a great role model for the idea of soaking the rich with higher tax rates. She didn’t really offer evidence for that specific assertion, but Politico reports that she did say that “Brazil has the highest tax-to-GDP rate in the Western Hemisphere and guess what — they’re growing like crazy.”

I’m not sure if “growing like crazy” is an accurate description, particularly since poor nations normally have decent growth rates because they start from such a low baseline.

But let’s excuse that bit of rhetorical excess and focus on the really flawed portion of her remarks.

Contrary to her direct quote, Brazil does not have the “highest tax-to-GDP rate in the Western Hemisphere.” It may have the highest tax burden in South America. And it may even have the highest tax burden in all of Latin America, but its overall tax burden of about 24 percent of GDP is slightly below the aggregate tax burden in the United States.

I suppose I should issue a caveat and say there’s a very slight chance that the recession has temporarily pushed U.S. tax receipts as a share of GDP below the Brazilian level, but that isn’t apparent from the IMF data. Moreover, there’s no doubt that the tax burden in Canada is significantly higher than the Brazilian burden.

So Secretary Clinton either was unaware that the United States and Canada are in the Western Hemisphere, or has no clue how to read fiscal statistics.

But let’s suspend reality and assume that Brazil has a higher tax-to-GDP ratio. Would that somehow be proof that Brazil is a role model for class-warfare taxation? There is no precise definition of that term, to be sure, but high tax rates on the rich presumably are a necessary component of any class-warfare system. Yet Brazil’s top tax rate is 27.5 percent. That’s not exactly a low-rate system such as Hong Kong, and it’s 27.5 percentage points higher than the zero-percent rate in the Cayman Islands, but it also happens to be significantly lower than the 35 percent (soon to be 39.6 percent) rate in the United States. If that’s class warfare, sign me up for the Brazilian approach.

I suppose it’s possible that Brazil’s top tax rate recently has been boosted, but that didn’t show up in a Google search. And even if the rate was just increased, that would hardly be proof of Secretary Clinton’s strange hypothesis that high tax rates and/or high tax-to-GDP rates are a magical formula for growth. That would require looking at future economic performance with the higher top tax rate, not the recent growth rates with the 27.5 percent top tax rate.

But pointing out Secretary Clinton’s mistakes seems a bit rude and I do like to be a gentleman, so let’s at least give her points for consistency. Earlier this year, she urged higher tax rates on the so-called rich in Pakistan, so at least she doesn’t discriminate in her desire to punish success.

The Four Congressmen of the Cotton Subsidy Apocalypse?

Yet another show of that rare commodity, bipartisan efforts to reduce the size of government today. Four members of the House—two Republican and two Democrat—have sent a letter to President Obama, calling on him to reverse the insane policy of bribing Brazilian farmers with subsidies in an attempt to correct, in accordance with the perverse two-wrongs-make-a-right school of logic, for  illegal U.S. subsidies. (There were other questionable parts of the deal with Brazil).

Barney Frank (D, MA), Ron Kind (D, WI), Paul Ryan (R, WI) and Jeff Flake (R, AZ) make compelling arguments for finding a better and more permanent  solution to the dispute than the current (dodgy) deal with Brazil, including arguments about fiscal responsibility, the adverse effects of distorting markets in this way, and the implications for the U.S. economy of continuing to operate the cotton program in its current form.

They also cleverly allude to President Obama’s emphasis on enforcement in his trade policy, pointing out that enforcement runs two ways:

Should we fail to effectively reform [the cotton] program now, American businesses and workers wil pay the price because we refused to write a law that complies with our international obligations. We cannot expect our trading partners to play by the rules if we are not willing to do the same. [emphasis added]

The press release from Rep. Flake’s office contains some great quotes, too. Flake, for example, says, “This proposal takes our federal farm subsidy policy from the impractical to the absurd.” 

But I’ll give the last word to Rep. Frank, who has this gem to offer:

[T]he Obama administration apparently feels compelled to preserve our right to subsidize American cotton farmers by extending that subsidy to Brazilian cotton farmers.  People looking for an illustration of the meaning of the phrase, ‘from bad to worse,’ need look no further.

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Ms. Weaver Goes to Washington

Today in Washington: actress Sigourney Weaver testifies before the  Subcommittee on Oceans, Atmosphere, Fisheries, and Coast Guard of the Senate Committee on Commerce, Science and Transportation Committee on the topic of ocean acidification. Because, you know, she played an environmental scientist in Avatar. It’s the best fit since Jane Fonda, Jessica Lange, and Sissy Spacek – all of whom had played farm women – testified on America’s agricultural crisis.

Congress doesn’t have time to vote on presidential nominations. It doesn’t bother engaging in serious oversight of presidential power and civil liberties abuses. It looks at the ceiling and whistles as the national debt approaches Greek levels. But members of Congress have time to listen to an actress discuss the topic of ocean acidification.

This seems like a topic for “Really!?! with Seth and Amy” on Saturday Night Live. Really, Senate Commerce Committee? You think Sigourney Weaver has important information that you need to know? Really? And you’re not just doing this to get yourselves on television? Really!?! And you think the most important thing members of Congress could be doing today is getting their pictures taken with Sigourney Weaver? Really!?!

Of course, this is not just a one-day thing for Sigourney Weaver. She also traveled this month to Brazil to try to stop the construction of a dam. Because who would know better than a Hollywood-Manhattan actress how to make tradeoffs between energy needs and environmental risks in Brazil?

Now let me just say that I’m not arguing that ocean acidification isn’t an important topic. And I’m not criticizing Avatar or its defense of property rights. I’m just questioning whether Sigourney Weaver, Sissy Spacek, Jeff Daniels, Nick Jonas, and the Backstreet Boys have the kind of expertise that Congress ought to draw on in deciding how to run my life. Or then again, maybe planning the economy and running other people’s lives is farce at best, and Congress should just hold hearings with Will Ferrell and John Cleese.

Peterson (Finally) Changes His Tune

I’ve written before about Rep. Collin Peterson’s (D, MN) disdain for the World Trade Organization, and its rulings against U.S. farm programs. However, in launching his 2012 Farm Bill listening tour, the Brownfield blog reports that he sees that perhaps some changes might be necessary after all. And, lo and behold, he cites the WTO rulings as the reason:

One of the key issues [in the 2012 Farm Bill] will be what to do about the way that cotton farmers are subsidized. The committee’s chairman, Rep. Collin Peterson, D-Minn., said today that the cotton program will have to be overhauled in the wake of Brazil’s successful challenge to the subsidies at the World Trade Organization. The Obama administration agreed to change the program in a deal to avert retaliation against U.S. exports to Brazil. [link added]

Subsidies for cotton currently mirror those for corn, soybeans, wheat and other commodities, but there’s no reason why they have to be the same for each crop in the future, said Peterson. “In the past we’ve tried to have a one-size-fits-all approach, but maybe that’s not the case in the future. I’m willing to consider that,” he said. “If we don’t address it, we may be back in the soup again with potential retaliation issues.” [emphasis mine]

Finally, the penny drops.