Invulnerable Brazil?

With Brazil failing to implement structural economic reforms, why haven't international financial markets punished the country? The reason is a steep reduction in foreign debt and a strong fiscal position, which have reduced Brazil's vulnerability to a world recession or a sharp decline in export prices.

Two questions have dominated economic debate in Latin America in recent years. First, when will the current period of great international liquidity end? Second, what will happen when it does? We could also add a third, related, question: are Latin America’s governments preparing for that day? In the case of Brazil, the answer appears ambiguous, at least at first glance.

On one hand, Brazil has remained more or less at a standstill in terms of economic reform after the start of President Luiz Inácio Lula da Silva’s administration in 2003. Essential changes to the tax code, labor law, and pension system have simply not been made.

On the other hand, whereas, lenders once demanded commitments from Brazil that were often nearly impossible to meet due to the political situation, these same investors now generally seem completely satisfied with Brazil, despite its economic policy paralysis.

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