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Brazil’s situation is better as compared to most countries in the same financial level in the world. As an emerging economy, Brazil foresees its performance by the end of 2011 being fruitful and having lower deficits incurred as compared to its past situation. More so, after the period of recession hit the country and the world, in 2010 it started showing signs of improvement in growth with investors flocking back and enhancing its recovery. According to (Ward n.p), Brazil is one of those countries that have been categorized as developing at a fast rate with low liability levels. Further, the banking sector has been revamped to control all the discrepancies that may have led the country to debts, by centralizing regulations on one governing financial body. The rate of currency exchange and the currency strength both domestically and internationally, has improved by being recognized among the emerging economies.
This study is set to show the fiscal scenario in the country, public liabilities compared to gross domestic product, status of the countries deficits both internationally and within the country. Another area to assess is in respect to bank supervision and regulation, independence supervisory agency and structure of deposit insurance agency.
According to (Fiscal Monitor Update n.p), Brazil situation is average with turnover rise due to rise in cost of goods and assets prices raise leading to financial strength. On the other side of the balance, spending increase has effect on the revenues since they do not have a permanent structure due to spending margin. Further the situation was recorded as partially better than the previous year, 2010 with deficits levels in the country slightly down with comparison to the other years. More so, the envisioned goal is to reduce the liabilities in the country by implementing policies that will enhance the fiscal situation in the country. With situations between the developed countries affecting each other on global perspective, the requirement is to learn the approaches taken by other big economies for benchmarking. The financial risks are not to be misconstrued as (Fiscal Monitor Update n.p) suggests, but pre- judging on the probable direction on regular occasions within a year, would save the situation, based on formulating policies to curb liabilities.
In relation to the public liabilities, as of April 2011, the level of public debt is lower with comparison to the year 2010. The prospects of the country are to attain the debt rate at 108 percent to the gross domestic product. Currently, the status of public debt is at 40 percent in comparison to gross domestic product. Based on previous years the turnover scale was affected by the spending power of the country leading to its debtor status, among emerging economies. However, the situation is changing in dimension, due to the policies proposed and implemented by the former president, Lula Da Silva. This is in respect to the global financial crisis, which saw Brazil heading to more borrowing than crediting domestically. In addition, (Brazil Economy watch) highlights that the country loop holes in the economy, were accelerated by the domestic debts between years 1994 to 2003.
Brazil’s trends in deficits are characterized by the improvement in its policies of reducing the level of spending to lower debts in borrowing both domestically and from international point of view. In respect to this, Brazil as an emerging country in terms of economy has experienced its currency appreciation, with its government taking control of exchange hence regulating taxes to favor foreign and domestic investments, in conjunction to independence financial institution controlling monetary issues to elude liabilities (Brazil Economy Watch).
Domestic debt in Brazil is characterized by borrowing funds within institutions in the country and uncertainty of clearing the loans. This was fueled by the strategy to promote domestic investments as opposed to international investors which proved fruitful but was only short lived as the country incurred huge debts (Brazil Economy Watch). More so, Brazil currency status has been regulated to long-term borrowing in domestic currency and with interest rate fixed, until stability is realized. Implementing on clearing deficits with domestic turnovers has proved be helpful to brazil as opposed to using international currencies to finance liabilities, due to varying conditions which may not be met; hence more debts (Ward n.p).
In Brazil the bank supervision is independently done by Central Bank which regulates all the monetary aspects. The country has the largest financial institution in the South America; it has improved to a creditor by enhancing funding of domestic and international firms, due to the standards implemented by the main financial governing body as directed by the government (Fiscal Monitor Update). The Central Bank regulates and supervises the rates of interest over other financial institutions. This has led to lower in the rate of interest hence reduction of inflation that had loomed in the country due to high spending ratios compared to the country’s turnover.
According to (Mitchell n.d), the independence supervisory agent in Brazil has formulated regulations and scrutiny practices for domestic borrowers with the inspection of capacity to clear their loans, and lowering the interest rate. More so, to decrease the deficits in the country, the Central Bank has created new forms of loan credits to cater for varying needs of borrowers without bias, depending on the time and interest involved in repayment; hence equality in borrowing funds.
Emerging Markets Weekly (13) states that the role of the independence financial institution in the country is to oversees the inflation rate, spending ratio to the turnover and the investments from the foreign countries plus regulations in crediting. Finally in respect to this the government instills that all financial institutions govern their assets in terms of maintaining surplus capital to promote their lending capabilities to domestic and foreign investments.
The depository agency is based under formulated regulations to maintain the accounts within financial institution to the requirements mandated. The agency regulates the funds that are used for investments, with consideration of the finances available, the risk involved and the benefits that these developments will attain and contribute to the economy (Brazil Economy Watch 2008).
The composition of depository agencies includes determining the prospects of proposed investments in the country, the implications involved hence evaluating risks in accordance to a specific period. Relationships between this agency and the financial institution are maintained to assist in pre judging risks before investments are initiated (Emerging Markets Weekly 12).
In conclusion, Brazil strategies are significant in terms of banking and insurance policies, investments plans geared to reducing levels of deficits. More policies are still pending to attract and maintain foreign investors by the end of 2012 Olympics.
Brazil Economy Watch. 1 May 2010.
“Brazil- struggling with heavy inflows, an overhauled currency and a widening current account deficit”. Emerging Markets weekly: 2010. 1-14.
Mitchell, Jason “Brazil’s stellar returns attract global private equity players TEST Brazil’s Buyout Boom” Institutional Investor 12 March 2011.
“Transcript of a Press Briefing on the 2011” Fiscal Monitor Update 27 January 2011.
Ward, Sandra (Ray Dalio). Personal. 14 March 2011.