January, 2020 – Brazil – Rossetti Advogados
In addition to opening up the economy and encouraging private credit and economic freedom and cutting through the red tape, the reforms implemented in the economy throughout 2019 by President Jair Bolsonaro’s administration, especially the Social-Security reform, are contributing to a favorable economic environment in Brazil, reflecting the high expectations for the year 2020.
The results start to appear. The Brazilian stock exchange index (“Ibovespa”) started the year at 87,880 points and ended the year 2019 reaching the historical high of 117 thousand points, closing the year with an increase of over 30%. This is the highest accrued high since 2016.
In December 2019, Standard & Poor’s (S&P) revised Brazil’s economic perspective from stable to positive, and it already indicates a rating upgrade.
Moreover, the more sensible economic indices commence to present a significant recovery.
The inflation measured by the Brazilian Broad Consumer Price Index (IPCA) is due to close the year 2019 at 3.78% and the Brazilian Industry Confederation (CNI) forecasts that the inflation will amount to 3.70% in 2020, which is below the target established by the government economic staff, for the fourth year in a row.
The inflation target set by the National Monetary Council is 4.25% in 2019, and 4% in 2020, with a tolerance range of 1.5 percentage points up or down.
The basic interest rate (Selic), which is currently 4.5% per annum, is the lowest in the country’s history. For comparison purposes, in early 2019 the interest rate was at 6.5% per annum.
And the unemployment rate, which ended 2018 at 12.3%, ended 2019 at 11.8%, with a favorable perspective for further reduction during continuation of the resumption of economic growth.
For 2020, the government has already signaled that it wishes to continue the process of adjusting public accounts by introducing new tax rules and reducing civil service costs.
The proposed administrative reform that may be submitted to the Brazilian Congress early this year might include rules such as the ability to dismiss civil servants for poor performance and longer terms for career advancement. So far, it is not yet possible to know if some of these rules will affect civil servants who are active or if they will only apply to those admitted in the future.
The tax reform, in turn, will unify federal taxes and simplify the collection system, which may result in more formal jobs and increase tax collection.
For a country that still suffers the consequences of the recession of the years 2015 and 2016, it is comforting to see economic activity gaining traction, more jobs being generated and investments, especially private ones hitherto dormant, finally starting to get off the drawing board. The path may be arduous, but much more virtuous.
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This article is based on publicly available information and given for informational purposes only. It is not intended as legal advice or as a comprehensive analysis of the matters referred to herein.