Templeton's Hasenstab: The 'enormous potential' brewing in Brazil's economic crisis

'Short-term pain for long-term gain'

Brazil's political implosion may be a turnoff for foreign investors, but in reality this crisis will likely facilitate a much-needed break from the toxic combination of overspending and excessive government credit expansion seen in recent years, writes Michael Hasenstab, CIO at Templeton Global Macro Group.

Having once been part of the quartet of so-called BRIC nations powering global growth, Brazil has become a laggard, falling deep into recession, its worst since the 1980s. Unemployment is at its highest since 2009. By the end of 2015, inflation soared to 10.7% from a low of 4.92% in mid-2012; government bond yields breached 16% from below 9% in 2012; and the real has depreciated by more than 150% since 2011. Brazil's problems cannot simply be blamed on the fall in commodity prices. Rather, they are largely the result of poor and overly pro-cyclical economic policy. Government-direc...