Author: Cirilo Junior

Source: Folha Online - SP - MONEY - 01/12/2009

JUNIOR CYLINDER
Folha Online, in Rio

The drop in revenue and the reduction in economic activity held back the growth of the so-called underground economy - production of goods and services not reported to the government -, which measures the informal market and illegal movements among the formals.

A survey by FGV (Fundação Getúlio Vargas) and Etco (Brazilian Institute of Competition Ethics) shows that this informal economy was practically stable in the first half of this year, with an expansion of only 1% higher than that of GDP (Gross Domestic Product).

“The tax burden fell during the crisis. This reduces the incentive for activities to migrate to the informal economy. At the same time, the fall in the level of activity also reduces the demand for goods and services, provided by the informal economy, slowing its growth, ”said Fernando de Holanda Barbosa, responsible for the research.

If you take into account the last 12 months ending in June, the underground economy grew by 22,5% in addition to GDP.

"The strong growth of 22,6% is much more dependent on the second semester of last year, than on this first semester, when it was practically the same growth in GDP", commented Barbosa.

The strong expansion of the informal economy at the beginning of the worsening of the crisis is linked to the lack of credit that has taken over the market. Barbosa explained that the formal economy is directly dependent on credit, unlike the underground economy.

"At that time, the formal economy was hit and the underground economy continued to grow as if the crisis had not occurred," he noted.

The expectation is that, as the economy resumes growth and tax collection rises again, the shadow economy should expand again. Barbosa's projection is that the informal market will grow slightly more than GDP in 2010.

Barbosa recalled that, in Brazil, the underground economy normally moves in the same direction as the formal market. For him, the upward movement of the informal market shows that “something strange” happens in the Brazilian economy.

“The underground economy is a symptom, that something in the Brazilian system is wrong. It is not an evil in itself. It will not necessarily end if there is inspection, that is, probably if there is a very strong inspection of some activities that are carried out today, they will cease to exist ”.