Broken Brazil

What’s the current state of Brazil’s economy?

After 21 years, in response to austerity measures, Brazil faced a nation-wide general strike on 29th of April 2017. Facing a recession from the second semester of 2013, Brazil’s government has sought to revise the legislation. Stagnant government spending, reduced personal consumption and investments and undervalued currency resulted in GDP deficits. The most important element in the general strike, however, has been the case of labor laws.

As a response to the crisis, the government has sought to amend the restrictive labor laws. President Michel Temer has defended the need to increase work hours and reduce welfare in order to plug growing economic gaps. The overwhelming increase in unemployed to over a million Brazilians has brought Temer’s government under scrutiny. Proliferating corruption scandals within the government has also been a reason for the eruption of violence in major economic hubs.

What are the Labor Law reforms?

Brazil’s Consolidated Labor Laws (CLT) has covered a myriad of employee benefits from transportation costs to health benefits and meals. This has raised the cost of hiring to phenomenal levels. Not surprisingly, employers are unable to hire more workers even if Brazil ensures protection of small and medium industries. However, categorization of workers as, say, domestic labor or interns, would determine their rights as they aren’t within the ambit of CLT.

Michel Termer’s labor reforms have been imperative to three areas. Firstly, earlier restrictions on outsourcing of labor would be eased. Secondly, the maximum contractual duration of work for temporary workers would increase from 3 to 9 months. Thirdly, 12-hour work days would be considered constitutionally legal. Other reforms would alter collective agreements over legal provisions via labor unions.

What major factors have influenced Brazil’s economy?

Government spending cuts have affected the welfare driven nation. Overall export decline and reduced private consumption brought about the initial wave of GDP decline. Investors, too, are increasingly wary of the Brazilian economy. The record high double digit rise of unemployment rate at 13.5% has crippled the economy and increased gang-related violence; desperation to earn a steady income has turned innumerable Brazilians to the informal sector and black market trade.

The drastic shift of Brazil exports from US-EU markets to those of developing countries and BRICS members has considerably affected the market. The initial years of exports to China was favorable for Brazil, given China’s growth rates. Now, as China faces an economic slump, Brazil’s economy has declined while China still exports to the US-EU markets.

Porous borders and rampant drug trafficking has set up a thriving black market. Venezuela’s economic crisis has caused numerous individuals and families to enter Brazil for employment or the purchase of necessities.

Assessment

As a prime supplier of coffee, soy and sugarcane, the dependence on agricultural products has been asserted in trade practices. The South American country’s reliance on Chinese purchases has adversely affected the country. Consequently, diversification must be two-fold. Industry and trade should expand into the services sector. Exports should divert back to American and European markets where there is greater relative stability. Greater regulatory mechanisms in trade between the BRICS countries could be beneficial to involved parties.

The slump in investments has largely been due to excessive corruption scandals. Domestic stability in government can draw investments from private companies seeking to expand as well as investments from other countries for infrastructure development. Labor laws have protected individual interest but has risked balance in the economy. Thus, Brazil should overhaul the private and public sectors of the economy with pertinent labor laws to come out of their current recession.