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Mr. Trump needs a large IMF • AEI

Anyone who thinks that President Trump will not need a large and engaged IMF has not being paying attention to disturbing economic and political developments in Brazil and Venezuela. Right in the United States’s backyard, two of South America’s major economies appear to be in political and economic downward spirals that could destabilize the whole region. It is difficult to see how these two economies can be stabilized without major IMF-led financial support programs and without the economic discipline that such programs would bring to those two economies.

An opposition supporter throws a petrol bomb while clashing with riot security forces during a rally against President Nicolas Maduro in Caracas, Venezuela, May 18, 2017. REUTERS/Marco Bello .

The present corruption scandal at Petrobras, Brazil’s semi-state owned petroleum company, surrounding President Temer and much of the Brazilian political establishment likely presages a prolonged period of Brazilian political instability. It also likely puts on hold the tentative economic reform efforts introduced by the Temer administration.

This is something that Brazil’s battered economy can ill-afford. The country is presently in its worst economic slump in the post-war period. GDP has declined by almost 8% over the past two years, unemployment is over 12.5%, and the budget deficit is almost 10% of GDP. The last thing that the Brazilian economy now needs is a loss in foreign and domestic investor confidence that would deal its economy with a further body blow.
The last thing that the Brazilian economy now needs is a loss in foreign and domestic investor confidence that would deal its economy with a further body blow.

The economic and political crisis in Venezuela makes that in Brazil pale in comparison. The economy is literally collapsing, as indicated by GDP now declining by more than 10% a year and with inflation in the range of 800%. Food and medicine shortages are now commonplace and street protests…

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