By Miriam Leitao (via O Globo).
The Brazilian government has just increased the import tax of 100 products. First product on the list is the potato. If the potato is of foreign origin it will be taxed by 25%. What’s so dangerous about imported potatoes? No one knows. The potato is the third item with the highest inflation within the food index. In the last 12 months, it went up by 24%. Its price rose by 4.4% in August alone. The new barrier will raise the price more.
Ok. You can avoid potato and eliminate its tempting carbs from the menu. The problem is what to do with an economic policy that is based on old ideas that go nowhere. Finance Minister Guido Mantega warned: “These products will be monitored by the Treasury, we will check for price increase. The industry can not raise prices. Otherwise, we will overthrow the rate immediately. ”
Good clarification. He has just made the measure much worse. Now we have to withstand a very damaging combo in Brazil: high import tariffs and price controls.
Other barred imported products are chemicals, furniture, petrochemicals, construction materials. There are other items like vaseline oil, tableware, household, hygienic or toilet articles made of plastics.
How does the government think it can “monitor” the prices of all these 100 products? There is no SUNAB, CIP (Interministerial Council Rates) nor enough agents to do this work. How to do it without these junk ways we used during out inflationary times? If a producer raises its price, is every other producer going to pay for the end of his privileges? Is the government going to put fiscal agents in vigils on street corners?
Any of these alternatives is amazingly old. Brazil has opened its economy 22 years ago and threw price controls in the trash can 18 years ago with the Real Plan. Now what’s in place, successfully, is the open economy and competition. Let the economy work. The government needs to govern instead of monitoring prices of toiletries or potatoes.
The potato war had other chapters in the past. The government closed the borders for frozen potatoes to our “friendly nation”, Argentina. It was a retaliatory protectionist measure. But the government had to turn back because 75% of frozen potatoes consumed in Brazil comes from abroad, mainly from Argentina. So consumption increased.
The government’s economic team said that when the dollar goes up everything would be back to normal in the Brazilian economy and the industry would be protected from unfair competition. Well, the dollar rose. But exports also fell. Several companies, including Petrobras, had huge losses from the rising cost of its dollar-denominated debt. In summary, it’s not only the currency devaluation that will bring back the country’s competitiveness. It’s also the removal of obstacles to efficiency.
To make things worse, the government has already warned that there will be another list of products that will see higher import tax rates. The list is currently under discussion. The government’s statement was enough to form a queue of manufacturers in Brasilia, all saying that their product is under serious threat of denationalization if the import is not barred.
All this mess is from the times when our inflation was high, the country was closed and had a czar to which the laws of economics insisted on disobeying. The government has officially decided to embrace its old mistakes.