Brazil does not have to look far to learn how fiscal irresponsibility can tear apart a country’s economy. inflation in Argentina Borders on 100% and Peronism, with its lack of interest in reducing the fiscal deficit, are major factors that led to this chaotic scenario.
“What really destroyed Argentina is Peronism, a system of political organization in which there is a very strong force of trade union movements,” emphasized economist and doctor of international relations Igor Lucena. He described the country’s political union organization as the supreme good: financial costs don’t matter.”
Absorbing inseparable government expenditures is part of the country’s political and economic organization which, according to the specialist, is very difficult to combat without a radical economic plan, such as the Real Plan in Brazil.
“Peronism has turned Argentina, which was one of the richest countries in Latin America, into one of the poorest countries,” Lucena stressed.
Within this system, the state today led by the Peronist Alberto Fernandez prints money uncontrollably, spends more than it collects and still borrows in dollars – therefore, it needs to be returned in dollars. This becomes an almost vicious cycle, as devaluation makes debts unpayable.
Across the ocean, another recent event involved former Prime Minister Liz Truss, 5th in United kingdom Since 2016. The Musical Chairs, in which she stayed only 45 days, was also related to tax issues.
Truss’s initial proposal was to create a large tax cut, which would benefit even the richest, within a small budget, with a simplified country, very different from Argentina. However, to cover the gap in the government’s accounts, the idea was to borrow billions. Fear of increasing public debt worried investors and made the pound fall to the lowest value in history against the dollar.
After investors showed pessimism regarding Truss’s economic plans, the British government announced changes, but they weren’t enough to keep the new prime minister in power. She resigned, and the swift movement of the UK leadership may have prevented further economic tragedies.
Greece, for example, despite eagerly regaining some of its international economic credibility, is still suffering the consequences of its fiscal irresponsibility for more than ten years. According to a recent survey by the MARC Institute, the greatest concern of the Greek population is the high cost of living (84.5% of Greeks). This problem predates tensions with Turkey (44%), for example.
In the face of accelerating inflation, which has reached 12.1% – among the highest in the EU, according to Eurostat – the increases have been particularly dramatic in energy: gas prices have quadrupled in one year (+332%) and electricity are up 30%. . As winter approaches, many Greeks fear that they will not be able to keep warm.
When the economic crisis hit in 2010, prices soared and the country could no longer finance itself in the international markets. In 2015, after the radical left government of Alexis Tsipras came to power and confronted Brussels to reduce austerity measures, rates reached nearly 11%.
It took a while for Athens to regain confidence. The political change in July 2019 also had a positive impact on investors, who found the conservative government of Kyriakos Mitsotakis less unpredictable, cutting taxes on property, corporations and social contributions. But there is still a long way to go to account for the losses incurred over so many years.
Looking at these examples, Brazil’s monetary policy is efficient and even experienced three months of contraction this year. For Lucena, the biggest danger the country faces today is financial immaturity. “We cannot spend more than we earn,” he warned. The economist pointed out that what hinders Brazil is the exchange rate and monetary maturity, but there is a risk of following paths like those of the countries mentioned in the report if there is a complete lack of control over fiscal spending.
That is why it is so important that the maximum transitional position that has been announced is close to R$70 billion or R$80 billion, which is only for this year. And that next year, we will have a change from spending cap to long-term debt control,” Lucena summed up.
“Friendly zombie guru. Avid pop culture scholar. Freelance travel geek. Wannabe troublemaker. Coffee specialist.”
