Source: InfoMoney - SP, 14/07/2009

SÃO PAULO - Highlighting Brazil's resilience and the measures taken by the government in the face of the crisis, the OECD (Organization for Economic Cooperation and Development) published on Tuesday (14) its annual report on the Brazilian economy.

According to the organization's analysis, Brazil's macroeconomic consolidation, added to an improved external position, was largely responsible for the economy's resilience. In this context, the OECD report praises the economic policy adopted by the government, which combines an inflation target, flexible exchange rate and regulated fiscal management.

This panorama of the Brazilian economy also helped the government's quick and incisive response, "widely appropriate", according to the OECD. Since the beginning of international problems, steps have been taken both to increase market liquidity and to relax the tax burden in cyclical and consumer areas.

More steps ahead?

According to the OECD assessment, "there may very well be room for more monetary easing in the short term, depending on the strength of the recovery and the evolution of inflation expectations in the coming months".

However, on the fiscal side, the scenario is different. Although the measures already adopted have not compromised the sustainability of the debt in the long run, the organization advises against greater activism on this front, unless economic activity gets much worse.

On the other hand, there are many changes that can still be made. “Additional structural reforms should focus on containing growth in public spending to support a continued fiscal adjustment,” says the OECD, raising the possibility of adopting a ceiling on the rate of expenditure advance.

Another point advised by the organization is "a gradual elimination of reserve requirements for banks and the termination of existing directed credit operations".

To improve the future

Despite all the progress made by the Brazilian economy and demonstrated by its greater resilience to external shocks, there is still much to improve in the country. “Monetary authorities must not lose sight of the long-term challenges that must continue to be faced to boost growth potential of the economy and eliminate the difference in the standard of living in relation to the OECD area at a faster pace ”.

One of the most important factors in the path of improvement in the Brazilian economy is the reform of the tax system, which, according to the organization's analysis, is “complex, leads to predatory competition between states and weighs on labor”. In this sense, the document praises the reform discussed by the government, but warns that additional support from the states will be necessary for the changes to be adopted efficiently and completely.

Finally, given high government spending and results that are not always satisfactory, OECD economists suggest that there is great scope for efficiency gains in Brazilian government operations. "The return from initiatives to strengthen long-term planning and reduce budgetary rigidity would be ample," comments the organization.