The Brazilian Bottleneck
Brazil has long been criticized for excessively focusing on the demand side of the economy, while at the same time, neglecting the supply side. As a result, Brazil is lumbered with bottlenecks in the production and infrastructure sectors. As a result, despite its strong middle-class, it does not have the capacity to produce sufficient supplies to meet the country’s demand for goods and services. As recently as 2009, the Brazilian government’s response to the economic crisis was to lower interest rates and cut taxes on consumption and imports. While this had the temporary effect of causing Brazil to post 7.5 percent growth in 2010, it is not a sustainable solution. Even during 2010, inflation levels were dangerously close to the Central Bank’s ceiling of 6.5 percent.2