It’s the economy stupid! Or, rather, the stupid people screwing it up.
Brazil’s currency has always been “undervalued” and so has Brazil. It’s generally seen as the country with the most economic potential, and always will have.
The place is a basket case economy.
While Brazilian entrepreneurs and business people are probably just as good as those in other countries, they aren’t playing on a level playing field.
The Brazilian tax code is a case in point. The tax burden in the US and other countries is split between the amount of tax paid and the cost of compliance, with the greater cost being the cost of the tax.
In Brazil, though, the various local, regional, and federal governments all levy their own taxes in a multitude of ways creating a labyrinthine assortment of taxes that have to be recorded and paid. The burden of simply sorting out these various taxes can amount to 5–10% of a company’s revenue. It may not sound absurdly high, but it means the companies have to pass on these costs to their customers. When you compound 5–10% though the entire supply chain, the costs become absurdly high.
That’s just the taxes. Other regulations work to also kill the economy.
While I was there I ran out of money. I couldn’t withdraw cash from ATMs using my ATM card (maybe they’ve fixed that absurdity) and all I had left was US$500 cash.
In any other country I’d be fine.
But in Brazil’s largest city Sao Paulo, there were only two places a tourist could change foreign exchange — the airport and the Hilton Hotel. They charged a $10 flat fee plus commissions plus an absurdly low conversion rate. By ripping me off, the country missed out on me spending extra dollars because I refused to convert the rest at that rate.
I’m not saying that his is THE big problem. It isn’t. It’s indicative of the problems in Brazil of an outdated and out of control regulatory system that’s stifling industries and slowing the economy.
Were the country to deregulate, reform the tax code, and remove counterproductive protectionist policies, the country’s economy would boom and the real would soar.
Don’t hold your breath though. There’s no indication of that happening any time soon.
From 50c to 20c — 60% of its value in ten years.
