The Economy 07/03/11
Inflationary pressures trigger reactions in Brazil and Bolivia, the IMF Managing Director praises Brazil’s economic policies and a long-standing US-Mexico trade dispute is resolved.
Photograph: International Monetary Fund
As the economic analyst Rogelio Núñez remarked last week, ‘the fight against inflation has become the number one priority for most Latin American countries’. Following its recent fiscal adjustment to inflation in the form of a budget cut, Brazil has undertaken a further measure to curb inflation, which has now reached 6%. The monetary committee of the central bank (Copom) announced an increase in the basic interest rate by 0.5% to 11.75% per annum, making the Brazilian base interest rate the highest in the world.
The Managing Director of the International Monetary Fund (IMF), Dominique Strauss-Kahn, visited Brasilia last week and praised Brazil’s ‘impressive recovery from the 2008-09 crisis’ and ‘sound economic management’.
While pointing to the challenges that arise with rapid growth, such as the risk of an overheating economy, Strauss-Kahn emphasised the effectiveness of Brazil’s poverty reduction programmes, including the Bolsa Familia, which ‘is being copied in many countries’. Finance Minister Guido Mantega in turn announced that Brazil’s rapid GDP growth (7.5% in 2010) was ‘exceptional’ and noted that growth is projected to settle at 4.5-5% in 2011, thereby dampening further inflationary pressures.
In Bolivia, the annualised inflation rate has reached 10%. While food and sugar prices have been continuously high, inflationary pressures are now affecting bus drivers in some regions of the country.
The Confederación Sindical de Choferes de Bolivia (the transport workers’ union) responded to a recent removal of government subsidies on fuel by raising bus fares. Fares had been frozen for a decade, leading to massive declines in profits for bus operators as the cost of vehicle maintenance surged.
Government officials declared this move ‘illegal’, but after intense negotiations with Bolivia’s main umbrella union, the Central Obrera Boliviana, the Morales government did make concessions regarding another topic. Labour Minister Felix Rojas announced a 20% increase in the minimum wage and a 10% salary rise for public employees, backtracking on his earlier position that wages would only increase in line with inflation.
Finally, U.S. President Barack Obama and his Mexican counterpart Felipe Calderón have resolved a long-standing dispute concerning Mexican cross-border trucking. Albeit violating the North American Free Trade Agreement (NAFTA), Mexican trucks have been barred from crossing the U.S. border for the last 20 years, which in turn led Mexico to impose punitive tariffs on U.S. goods. The agreement to drop this barrier will ease bilateral trade relations, which currently amount to US$1bn a day.