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Brazil Bulletin Interview

Interview: Paulo Faria-Tavares, Managing Partner, PTX Lending consultants

“The economic team has fallen into a trap of its own making—the trap of growth at any price.”

Before Brazil can aim squarely at sustainable economic growth, the country needs to finally defeat the lingering shadow of inflation. That could mean higher interest rates. It could also spell a resurgence of unemployment. The policy choices are not easy, according to Paulo Faria-Tavares, who advises Brazilian clients on overseas lending opportunities. Excerpts from a recent interview follow:

  • On current economic policies: “The administration will not permit a recession, or even any substantial increase in unemployment, ahead of an election year. But that could mean more inflation.”
  • On the fight against inflation: “The economic team may try to hold back inflation through artificial means, such as tinkering with utilities rates, freezing fuel prices at the expense of Petrobras and other devices. But when the dam breaks, it is going to flood everyone.”
  • On monetary policy: “The economic team has fallen into a trip of its own making—the trap of growth at any price. The price is inflation. Even (Central Bank President Alexandre) Tombini is aboard, which proves that Illinois is not Chicago (Tombini earned his economics PhD at the University of Illinois; he notably does not adhere to the Chicago school of economic theory).”
  • On growth: “Brazil’s 7.5% 2010 economic growth was irresponsible. The government should have corrected this in 2011. Instead, they left the economy in an overheated state and that has now been incorporated into today’s conditions, including 6.2% inflation.”
  • On stimulus policies: “In 2012, the government adopted stimulus policies. But stimulus only works to pump up consumption. It does nothing on the supply side. The result is more consumption and no increase in output, which sets the stage for inflation.”
  • On the trend for inflation: “We may be losing control of inflation. In some categories, inflation isn’t 6%; it’s 10% or 12%. It’s like riding a bicycle. If you slow down, you fall off.”
  • On interest rate hikes: “I’m expecting interest rate hikes later in the year, but modest ones, with the Selic rate ending 2013 at 8.25% or 8.5% (the Selic base rate is currently 7.25%). Unfortunately, that won’t be enough to do much good on the inflation-fighting front. I think we’re going to shatter the 6.5% ceiling (under the inflation-targeting program) this year.” 

 Source: Brazil-U.S. Business Council -

Last Updated on Monday, 17 March 2014 10:58


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