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The Task Ahead for Brazil

Brazil is confronting a triple crisis: a severe economic downturn, a corruption scandal that has ensnared the commanding heights of the economy and politics, and a government crisis that may soon culminate in the impeachment of President Dilma Rousseff. All of this underscores the need to overhaul Brazil’s economic institutions.

SÃO PAULO – Brazil is confronting a triple crisis: a severe economic downturn, a corruption scandal that has ensnared the commanding heights of the economy and politics, and a government crisis that may soon culminate in the impeachment of President Dilma Rousseff. Regardless of whether Rousseff is removed from power, the key issue raised by the impeachment threat – her management of fiscal policy – underscores the need to overhaul Brazil’s economic institutions.

At the heart of the impeachment charges against Rousseff is an accusation that she violated Brazil’s Fiscal Responsibility Law. In 2014, facing re-election, Rousseff stepped up the practice of running overdrafts in public commercial banks in order to pay for social programs. In essence, she “borrowed” R$55.6 billion ($15.6 billion) to help her government meet its primary-surplus target while sustaining social transfers – and thus ensure her election victory.

In 2015, however, the federal accounting tribunal (TCU) rejected her accounts and accused Rousseff of committing fiscal irregularities. After the TCU decision, she decided to “pay” off these “loans” in December 2015.

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