President Michel Temer’s popularity may be at a low point but there are signs that his administration’s orthodox economic policies are taking effect. A demoralised left-wing opposition has opened up the field for Temer to act that was, until recently, quite unimaginable.

The sell-off of four profitable hydroelectric projects belonging to the publically owned Compahia Energética de Minas Gerais (CEMIG) was triggered by the federal government’s hardline attitude towards debt. It is now expected to sell off equity that the company holds in other companies. These include:

• Its ownership of Companhia de Gás de Minas Gerais (GASMIG);
• a 26% stake in Rio de Janeiro electricity retailer;
• a 19% in Transmissora Aliança de Energia Elétrica S.A. (TAESA);
• an 18% stake in the Sao Antonio hydro-electric project; and
• a stake 36.2% in the renewables company, Renova Energia, for which Canada’s Brookfield has emerged as a potential buyer.

Meanwhile the federal administration’s BRL44 billion (US$13.8 billion) privatisation programme is said to include a plan to sell a controlling stake in Eletrobras.

The government and Temer’s plan to cap the 2017 budget deficit at BRL159 billion (US$49.9 billion) is starting to look more credible. There are signs of improvement to be seen in some of Brazil’s leading economic indicators: inflation is at an annualised 3% which is its lowest for 18 years; unemployment is beginning to fall; interest rates are set to tumble; and the Bolsa de Valores de São Paulo stock market index is at its highest level for eight years.

Prof. José Márcio Camargo from the Pontifical Catholic University of Rio de Janeiro (PUC-Rio) is one of a number of economists who are becoming cautiously bullish about the Brazilian economy. He lists the downsizing the Banco Nacional de Desenvolvimento Econômico e Social (BNDES) and the ending of its subsidised loans as factors that will help remove structural inflation. Others include: the simplification of the basic education curriculum; the introduction of overriding budget caps; and the introduction of labour market contracting mechanisms for short-term hiring without the risk and burden of full labour rights.

Despite the optimism, however, most economists agree that Brazil’s economy is heading for serious trouble unless Temer implements structural reform.

This article was taken from our new fortnightly Brazil Politics & Security publication. If you wish to discuss the content of this article, or have any other questions in regards to Brazil then please contact us.