Posting from Rafael Herzberg of Interact Energy on Brazil’s Short Term Focus

Rafael is a consultant in the energy sector and, I believe, well informed.  Is his perspective here too pessimistic?

Here is the blog copied from:

How long can Brazil stay unbalanced?

Rafael Herzberg is a partner at Interact Ltda, a Brazilian energy consulting company

For the vast majority, the official speeches pointing to the great social achievements and the preparation in progress, of changes to meet the challenges, are good enough to maintain their positive expectations.

But in real life, questionable practices continue as always in companies and public institutions. There are two in particular, untouchable and secular: the overpricing of contracts (sweet heart deals which feed the heavily entrenched corruption schemes in the Brazilian society) and the swollen payroll with cronies who keep in fact, the unquestionable support to the ongoing Government).

There is no moral reserve and even political will to change this picture. So what to expect? There are two main points, simple and devastating:

  • High Inflation
    To keep this situation, the Brazilian society will be “called” to pay through a growing “inflation tax”, which need not be authorized by the Legislative, Judiciary or Executive, and is charged directly to the taxpayer.
  • Loss of foreign exchange reserves
    The systemic imbalances – the trade balance of the country and its budget – cost a rapid erosion of hard currency reserves. To “hold” the price of the Dollar the Government is and has been selling a daily “ration” of USD 200 Million. If this practice is kept, before the end of the current term of the newly elected Government, the country will be exposed.

The main damage arising from this unfortunate scenario is the loss of a long-term horizon for the corporate world. And so we will all be more than ever, pushed to make decisions focusing only in the short term.

The problem is that no country can become developed only looking at the short term.

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