In the year 2008, the entire world was plunged into financial crisis, Brazil were part of the crisis. The economy of Brazil was tremendously hit by the global economic crisis. In fact, in the early stages of the crisis, authorities and majority of the economic agents were comfortable; this was because some macroeconomic components in the economy were very stable. However, despite the expectation, brazilin was hit by the crisis after Lehman Brothers became bankrupt (Baer, 2008). Perhaps, the most felt crisis in Brazilian economy was by credit markets and external accounts. Certainly, what matters more in the 2008 global economic crisis is how the Brazilians acted swiftly in handling the crisis. Brazil is the best and largest economy in Latin America, but it fell into technical recession and crisis after registering two quarters of declining GDP.
It is clear that the government of Brazil acted swiftly to succumb the global crisis; this is because the crisis did not last for a long time. They adjusted various components of their economic policies, which eased the impact of global crisis. The GDP growth experienced a recovery in the year 2009. The most effective policy used in Brazil to handle the crisis was banking system. However, the banking system was in danger but it performed well (Oldani, Kirton, & Savona, 2011).
Brazilian banks maintained their high interest rate allowing domestic banking to increase. Furthermore, the prudential policy helped Brazil in avoiding toxic assets in the economy that could hinder its stability. The 1994 real plan ensured that the inflation in the country became stable during the 2008 economic crisis. Despite the crisis banks continued to make profits under the macroeconomic policy (Baer, 2008). Additionally, the Brazilian banks were technologically improved and innovated so that the banks could process transactions so fast. The policy ensured that Brazilian banks remained competitively, and continued to make profits during the crisis. Brazilian banks maintained its domestic openness and reduced foreign opens, this avoided involvement with high-risk foreign economies (Nanto, 2010).
In 2008, banks had a lot of deposit money; hence, in order to protect its country against inflation and crisis, banks in Brazil bought government securities. Apart from, buying government securities, Brazilian banks decided to lend money to government, instead of private sector. Furthermore, the government policies and contra-cyclical measures that were used in the 2008 crisis was that, the Brazilian commercial banks adopted various ways of enhancing liquidity in the economy. These measures include a reduction in the compulsory reserve ratio by banks, and creating an avenue for huge financial institutions to buy loan assortment of small banks. The policy was implemented by worsening the credit condition in the country (Nanto, 2010).
Certainly, banking system in Brazil intervened in the foreign exchange market, so as to red8ced the impact of the crisis money market. The policy enhanced the liquidity ratio in banking sector, and became less concern on specific issue of exchange rate. Another monetary policy use to tackle the crisis was increasing the rate of interest to 13.75% in late 2008. This policy relaxed the economy by early 2009. Moreover, the federal public banks were persuaded to spread out their operations on credit issues (Oldani, Kirton, & Savona, 2011).
The Brazilian government also used fiscal policy to handle the 2008 crisis. Ministry of finance, on behalf of Brazilian government, used tax and government spending policies. The IPI (Industrialized Products Tax) was reduced, this in turn reduced burden on motor vehicles. Therefore, many motor vehicles were bought. In addition, the government increased its spending to reduce cost of construction items and consumer durables. The government too supported housing, agriculture, and increased unemployment insurance duration (Baer, 2008).
Conclusively, the fiscal and monetary policy saw Brazil resist and recover the 2008 global crisis by early 2009. Banking system performs a lot in handling the 2008 global economic crisis. The government too acted by reducing tax on industrialized products, cars, giving incentives to farmers. Additionally, Brazil up to date has fairly integrated itself to world markets, less vulnerable to global economic, shocks. Despite the recovery, Brazil still has very high debt, low investment, and unnecessary government spending.
References
Baer, W. (2008) The Brazilian Economy: Growth and Development. Colorado; Rienner Lynne
Press.
Nanto, D. (2010). Global Financial Crisis: Analysis and Policy Implications. New York:
Congress Research Press.
Oldani, C., Kirton, J., & Savona, P. (2011). Global Financial Crisis: Global Impact and
Solutions. London: John Wiley.
