Brazil Is Turning Its Fiascoes Into a Much-Needed Win

(Bloomberg View) -- Well, here are some things you don't see every day. A few headlines in Brazil are aligning to show Latin America's largest economy a path back toward confidence -- and, just possibly, to restore some of the world's confidence in democracy.  

The first unusual circumstance is that Brazil's central bank governor will almost certainly have to write a letter to the finance ministry explaining why inflation is ending the year below the 3 percent floor of the target range. Too-high price increases have traditionally been Latin America's foil. That's always a "dog bites man" story, hardly worth mentioning. What's happening now is news, akin to "man bites dog."

The second circumstance is that in cutting the benchmark interest rate to 7 percent last week, the central bank brought its rate in line with that of the national development bank BNDES. The latter has been used by corporations to borrow at below-market rates, often cosseting firms that are tight with the government. It's led to big distortions and poor investment decisions. BNDES is like Godzilla trampling over the corporate decision-making terrain.

The third is how microscopic approval ratings are encouraging President Michel Temer's administration and Brazil's congress to cooperate to pass constitutional amendments designed to limit spending and overhaul the state pension system. Ordinarily, an approval rating in the low single digits would have politicians running away from reform. But so great is public disgust at graft specifically and the political class generally that Brasilia's burghers are desperately trying to ward off pitchforks -- and that means doing something. In this, they are aided by Temer's decision not to run in next year's elections. 

Happily, the rare coalescence of these individually significant events is making a difference to Brazil's economy, which had been contending with its worst recession ever and a crippling lack of confidence in policy making. Temer, who almost had to resign himself, is only president because Dilma Rousseff was impeached last year. 

As my colleague David Biller has chronicled, things are now starting to look up: Consumption grew last quarter and investment rebounded. While gross domestic product increased 0.1 percent from the second quarter, what's striking is the mix. The 1.6 percent gain in investment was the first positive reading in four years. Private-sector economists are marking up their forecasts, with the median estimate for GDP next year now raised to 2.6 percent, according to a weekly survey by the central bank published Monday.  

It might be tempting to attribute at least some of this relative upswing to the broadening global bounce. After all, the country is a major commodity exporter. Tempting, but wide of the mark. Brazil is relatively insulated from global winds. For example, GDP fell just 0.1 percent in 2009 while many economies were almost in free fall. Similarly, until very recently the post-financial-crisis global expansion just seemed to pass it by.

Now the cliched green shoots seem to be shooting in Brazil -- precisely because things got so bad. Whatever the reason, we should all applaud the progress, especially in a part of the world where militaries ruled so recently. It's important these days for democracies to show they can function and get things done.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Daniel Moss writes and edits articles on economics for Bloomberg View. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.

To contact the author of this story: Daniel Moss at dmoss@bloomberg.net.

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