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Brazilian Federalism Bad: Economy

Decentralization in Brazil leads to inflation and economic crisis

Eaton, Associate Professor in the Department of National Security, and Dickovick, Ph.D. candidate at the Woodrow Wilson School of Public and International Affairs at Princeton University, 2004

[Kent and J Tyler, Latin American Research Review-“The Politics Of Re-Centralization In Argentina And Brazil” Vol. 39 Iss. 1]

Crisis has figured implicitly or explicitly in numerous influential explanations of economic policy change in developing and developed countries alike (Gourevitch 1989; Haggard and Kaufman 1992). If, as many scholars and development practitioners argue, certain forms of decentralization have provoked economic crises, then the onset of crisis is a natural place to look for explanations of political support for re-centralization. Specifically, economic crisis-defined as hyperinflation-should increase attempts by presidents to re-centralize and weaken the ability of pro-decentralization forces to oppose these attempts.4 Table 2 presents figures on inflation for Argentina and Brazil in the early 1980s to mid-1990s. The figures are suggestive because the re-centralizing changes discussed here followed on the elimination of hyperinflation in 1991 in Argentina and 1994 in Brazil. However, in neither of our cases did presidents
Centralization in Brazil is key to managing debt and the economy

Rosenn, Professor of Law – University of Miami, 2005
(Keith, “Federalism in Brazil,” 43 Duq. L. Rev. 577, Lexis)

In May 2000, Congress enacted a complementary law, the Law of Fiscal Responsibility (hereinafter "LRF"), which imposes a series of rules on all levels of government to try to insure fiscal responsibility and transparency in public finance. 69 This law represents a new stage of Brazilian federalism. The LRF limits the public debt of states to two times current receipts. For municipalities, the debt limit is set at 1.2 times current receipts. If the public debt of the states or municipalities exceeds those levels, in the next year authorities must take measures to reduce excess debt by at least one fourth in the following [*596] four months. 70 The LRF also prohibits one level of the federation from bailing out another level and the refinancing of loans by anticipating revenue receipts, a much abused public financing mechanism in Brazil. The LRF seeks to avoid the common practice of leaving debts for the next administration. Therefore, the LRF prohibits all levels of government from contracting new expenditure obligations in the last year of an administration unless officials can demonstrate that the expenditure can be fully paid off during the administration's term or that sufficient cash has been left to fund the obligation. The LRF imposes new limits on governmental personnel expenditures. The federal government may spend a maximum of 50 percent of current revenue on personnel. The states and municipalities may spend no more than 60 percent of current revenues on their payrolls. Moreover, each branch of government is subject to a specific ceiling. The Federal Executive can spend no more than 37.9 percent, the Federal Legislature no more than 2.5 percent, the Federal Judiciary no more than 6 percent, and the Public Ministry no more than .6 percent. There are corresponding percentages at the state and local levels. Finally, the LRF imposes transparency obligations. All levels of government must publish fiscal targets and report publicly on their debts, receipts, and expenditures. Common accounting standards were established, and officials are required to publish not only annual statements of account, but quarterly reports as well. Failures to comply with the rules set forth in the LRF are sanctioned with administrative penalties and withholding of federal transfers. Non-complying officials may also be removed from office, fined, or even imprisoned. 71

Latin America Key to Global Economy

Emerging economies like Latin America are key to the global economy

Cohen 2008 (Roger Cohen is a Staff Writer for the International Herald Tribune, “Cohen: The world is upside down”, 6/1/08, http://www.iht.com/articles/2008/06/01/opinion/edcohen.php?page=1)

RIO DE JANEIRO: For a while the world was flat. Now it's upside down.

To understand it, invert your thinking. See the developed world as depending on the developing world, rather than the other way round. Understand that two-thirds of global economic growth last year came from emerging countries, whose economies will expand about 6.7 percent in 2008, against 1.3 percent for the United States, Japan and Euro zone states.

The sharp rise in prices for energy, commodities, metals and minerals produced mainly in the developing world explains part of this shift. That has created the balance of payments surpluses fueling dollar-dripping sovereign wealth funds in countries like China. They amuse themselves picking up a stake in BP here, a chunk of Morgan Stanley there, and why not a sliver of Total.

We of the developed-world Paleolithic species are fair game for the upstarts now, our predator role exhausted. The U.S. and Europe may soon need all the charity they can get.To place this inversion in focus, it helps to be in Brazil, where winter (so to speak) arrives with the Northern Hemisphere summer, and economic optimism, as exuberant as the vegetation, increases at the same brisk clip as U.S. foreclosures.Huge offshore oil finds, a sugarcane ethanol boom, vast reserves of unused arable land, mineral wealth and abundant fresh water contribute to Brazilian buoyancy. But natural resources are only part of the story. As in China and India, an expanding internal market is bolstering growth. So is increasing corporate sophistication and global ambition. At the annual National Forum, a gathering of business leaders, I felt like a first-world pipsqueak as leaders of the national energy company Petrobas (bigger than BP, Shell and Total) and Companhia Vale do Rio Doce, or CVRD (the world's second largest mining company), reeled off head-turning statistics. Petrobras, which has spearheaded Brazil's push to self-sufficiency from heavy dependence on imported oil 30 years ago, will more than double oil production to 4.2 million barrels a day in 2015 from 1.9 million barrels today. "With the latest discoveries, the South Atlantic will become a huge oil producer," predicted José Sergio Gabrielli de Azvedo, its chief executive. Roger Agnelli of CVRD waved away the United States ("It's full of debt") to focus on the company's ambitions in Asia. It was imperative to be there, he said, because that's where growth, capital and ambition are. China, he noted, will account for 55 percent of iron ore consumption, 31.6 percent of nickel, and 42 percent of aluminum by 2012. Case closed. Like many other big emerging-market corporations, CVRD has been on a buying-spree. It's not just sovereign wealth funds that are acquiring first-world companies these days. It's the new giants of the NAN (Newly Acquisitive Nations). Emerging-market mergers and acquisitions are up 17 percent this year to $218 billion, while for the rest of the world they're down 43 percent to $991 billion, according to Thomson Reuters. The 2007 Unctad World Investment Report said developing-world direct foreign investment totaled $193 billion in 2006, compared to a 1990s annual average of $54 billion. The U.S. 2006 figure was $216.6 billion. CVRD bought Canada's Inco, a nickel miner, for $17 billion in 2006. It came close to acquiring the Anglo-Swiss miner Xstrata for $90 billion this year. Just last week, India's Vedanta Resources reached a $2.6 billion deal to buy U.S. copper miner, Asarco. That deal is being challenged by Grupo Mexico, creating a Latin-American-Asian fight for a U.S. company. If you have trouble getting your mind around that, try standing on your head. That's also a good position from which to view India's Tata Motors agreeing to buy Land Rover and Jaguar from Ford for $2.3 billion, or Tata Steel's acquisition last year of the Anglo-Dutch Corus Group steel company for $12 billion. Globalization is now a two-way street; in fact it's an Indian street with traffic weaving in all directions."In an inverted world, not only have developing economies become dominant forces in global exports in the space of a few years, but their companies are becoming major players in the global economy, challenging the incumbents that dominated the international scene in the 20th century," said Claudio Frischtak, a Brazilian economist and consultant.
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