Author: Saumíneo da Silva Nascimento

Source: Intelog - Porto Alegre / RS - 03/09/2010

For Economic Brazil - Saumíneo da Silva Nascimento **

Recently, some data on the underground economy in Brazil were presented by the Brazilian Institute of Economics of the Getulio Vargas Foundation (FGV), revealing that the informal economy represents 18,3% of the Gross Domestic Product, identical to the GDP of Argentina, or something close to R $ 578,4 billion.

The underground economy was defined by the Fundação Getulio Vargas study as the production of goods and services not reported to the government deliberately in order to: evade taxes, evade social security contributions and evade compliance with labor laws and regulations. This savings also avoids costs resulting from complying with applicable standards in the activity.

Taxonomy of the underground economy involves illegal activities that have monetary transactions (such as the sale of stolen goods and products, drug sales, prostitution, gambling, smuggling and fraud) and non-monetary transactions (examples in this case are exchanging drugs, goods stolen, contraband, theft for own use and production of drugs for own consumption).

But legal activities are also objects of diversion in the underground economy, such as those for tax reasons: these are cases of unreported self-employed and informal worker income and undeclared income and assets from legal activities.

An important point of the research carried out by Fundação Getulio Vargas is the revelation that in the last six months the underground economy has only grown 1%. In addition, some survey results demonstrate how this activity moves.

One way of increasing the underground economy is to reduce world growth, which as a consequence affects Brazilian exports; in addition, corruption is a component that also expands the shadow economy.

Regarding the underground economy in Brazil, the Central Bank's role in preventing financial illicit activities, combating money laundering and combating the financing of terrorism stands out.

Acting jointly with the Central Bank and other bodies, there is the Financial Activities Control Council (Coaf).

Coaf's mission is to prevent the misuse of legitimate economic sectors for money laundering.

To learn about the underground economy, Coaf analyzes the financial intelligence reports with data on the main operations initiated by the Federal Police.

The underground economy is what many know as the informal economy. In this type of economy, agents are interested in reducing transaction costs and result in increased profit margins.

This implies unfair competition. Therefore, it is essential that the underground economy is combated in Brazil.

Saumíneo da Silva Nascimento is an economist and president of the State Bank of Sergipe S / A (Banese)