Brazil’s post-covid business risk surpasses that of Chile, Peru, and Uruguay – EIU

RIO DE JANEIRO, BRAZIL – The operational risk for businesses in Brazil in a post-covid future lies in a mid range, according to the “Operational Risk in Latin America” report, from The Economist Intelligence Unit (EIU). On a scale in which 100 represents the highest risk, the country scores 51, with a “C” grade.

The highest risk (86 and an “E” grade) is Venezuela, followed by a group of “D” rated countries: Nicaragua (65), Haiti and Bolivia (both 63). The only American territory with an “A” grade is Aruba (19), a constituent but self-governing part of the Netherlands. Next comes Chile (25) in the “B” group, where South American Peru (37) and Uruguay (39) are also found.

Brazil also scores higher operational risk than group “C” peers such as Colombia (42), Mexico (44) and Paraguay (47), but is better than Ecuador (54) and Argentina (57).

The EIU report highlights attention points for business in countries in the region in three main areas: political, economic, and regulatory, tax, and labor policy risks. “Much attention is focused on the immediate impacts of the pandemic, but we are looking at the big changes that may occur after covid-19.”

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“In an environment where populist policy proposals for Latin America’s problems are beginning to thrive, we see great risks to legal and regulatory frameworks, tax policy, and the labor market,” comments Fiona Mackie, author of the report and EIU’s regional director for Latin America and the Caribbean.

Political risk is high, according to the report, because “voters complain against incumbents and call for policy changes, leaving room for populist proposals to prosper,” the team says, noting increased risks of social unrest.

Demands for changes in economic policies should become clearer in the call for more public spending, as the population is still faced with the impact of the coronavirus on income and employment, says the EIU.

Among the economic risks for Brazil, the EIU highlights the external sector. Brazil does not have a payment balance problem, but the report considers that the “negligent management of the Amazon forest” could lead to sanctions from the European Union and the United States. This risk, according to the EIU, is highly probable, but its impacts would be moderate.

In political terms, the EIU assesses that security is the most fragile point in Brazil, above stability risks and political efficacy. Security risk is perceived as moderate, but its impact would be high, considering a scenario in which the drop in cargo theft would be reversed, for example.

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Speaking about Latin America as a whole, the report says that security challenges are likely to worsen after the recession, and the pandemic will provide new opportunities for organized and cyber crime.

The risk to government effectiveness in Brazil, which is also moderate, relates to Jair Bolsonaro’s government undermining democratic institutions, which would have a high impact, according to the EIU.

Calls for a greater role for the state in the post-pandemic and a potential return of populist governments also suggest risks for policies such as in the legal/regulatory, tax, labor, and infrastructure areas.

In Brazil, the tax risk is “very high,” as it involves the failure to pass tax simplification or budget reforms, points out the EIU, considering that this would have a high impact in the country.

In infrastructure, the risk that concessions/privatizations will suffer long delays or be abandoned is also “very high,” but its impact would be moderate, according to the report.

The document recalls that Latin American governments have typically used a combination of tax cuts, cash transfers and loan guarantees to protect businesses and households in the pandemic, but the problem “is the lack of room to continue to strengthen fiscal support measures without creating credit concerns that could turn into macroeconomic instability. The high burden of fiscal stimulus poses risks of increased volatility in country exchange rates and a return of inflation, which would complicate the monetary policy environment and increase financial risk,” says the EIU.

“Our projections for Latin America this year and next are cautiously optimistic. But looking beyond the immediate issues of vaccine rollout and fiscal support, we see great risks of business-friendly policies being reversed and business-friendly reform agendas faltering,” Mackie says.

Source: Valor