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The following is the Executive summary of the OECD assessment and recommendations, taken from the Economic Survey of Brazil, published on 14 July 2009.
The global financial and economic crisis has not left Brazil unscathed. But a recovery is getting under way and should gather momentum in the second half of 2009 and into 2010. Continued macroeconomic consolidation – based on a sound policy framework combining inflation targeting, a flexible exchange rate and rules-based fiscal management – together with a much improved external liability position have underpinned the economy’s resilience. Policymakers should nevertheless not lose sight of longer-term challenges that will need to continue to be addressed to bolster the economy’s growth potential and to close the gap in living standards in relation to the OECD area at a faster pace.
Reaping the benefits of macroeconomic consolidation
The short-term policy response to the global financial and economic crisis has been by and large appropriate. Decisive action to shore up liquidity since the onset of the crisis has been important, and there may be room for some further monetary easing in the coming months. Fiscal policy has been relaxed on cyclical and discretionary grounds without compromising longer-term debt sustainability, but additional activism would be inadvisable, unless activity weakens much further. Additional structural reform should focus on containment of expenditure growth in support of continued fiscal adjustment, as well as on further financial deepening, based on a gradual elimination of compulsory reserve requirements for banks and a phasing-out of existing directed credit operations.
Reforming indirect taxes and labour levies
Brazil’s tax system is complex, conducive to predatory tax competition among the states and burdensome on labour. Overcoming these weaknesses is of utmost importance. The authorities propose to unify state-level VAT legislation across the country, to replace federal levies on enterprise turnover and payroll by a federal VAT and to alleviate the tax burden on labour income. A well thought-out reform package is under discussion in Congress. Support will be needed, especially among the state governments, to ensure that reform is efficiency-enhancing and consistent with ongoing fiscal adjustment efforts.
Making government operations more cost-effective
Brazil is a big spender by emerging-market standards and, in some respects, in comparison with OECD countries. But outcomes are not always commensurate with the level of spending, suggesting ample scope for efficiency gains in government operations. The payoff from initiatives to strengthen longer-term planning and to reduce downward rigidities in the budget would be large. Progress in this area would allow policymakers to identify cost-effective programmes more accurately and to secure adequate funding for these programmes, including through a reallocation of budgetary resources.
How to obtain this publication
The complete edition of the Economic Survey of Brazil is available from:
The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.
For further information please contact the Brazil Desk at the OECD Economics Department at email@example.com.
The OECD Secretariat's report was prepared by Luiz de Mello and Mauro Pisu under the supervision of Peter Jarrett. Research assistance was provided by Anne Legendre.