Brazil fiscal stability is under stress due to rising inflation, high public debt and recession generated by pandemic. The inflation is 2.75% at the moment. The welfare program helped President Bolsonaro approval rating to remain at around 40%.
The domestic pressure will likely to create concerns to Bolsonara government to implement economic structural reforms. Bolsonaro’s approval rating has been decreasing. In order to increase it, he is aware that he has to push fiscal spending on popular welfare program.
Foreign Direct Investment (FDI) has been halved in first half of 2020 to $18 billion. In the second half, it has recovered due to asset sales. S&P, Fitch have downgraded country’s sovereign credit rating to BB- due to high government debt level.
This is a major market from South America. Now let’s see Turkey.
President Erdogan is aware that his approval rating is dropping. In order to increase it, he needs to increase the spending with big project i.e. infrastructure projects. The inflation is 19% but Erdogan is aware that it needs to go down. Thus, he interfered the role of CB and assigned a new Director to CB. Most likely, the interest rate will drop considerably in forth coming CB meeting. Thus, would allow the businessmen taking loans as well as mid-size companies.
FDI is on the floor. Due to President role in CB and lack of economic reforms implemented, Foreign investors finds it difficult to invest. Even if there are some, the interest rate is high.
As summary, Brazil and Turkey although places in different part of globe share the similar path in economy and even in politics. Both Presidents struggle with their approval ratings. In order to increase it, they push the fiscal spending. Moreover, both are not happy with high inflation although it create various advantage to attract FDI. Both countries lack developing economic recovery program as well as creating confidence among foreign investors.
Both countries have to make severe choices in coming future. Either they will play for election or take measures to start recovery of economy. If they would lean on elections, there will be temporary summer on economy but storm will come back shorter than expected. If they will lean on recovery, it might cost them an election. Let’s wait and see what will happen.
