Pandemic or economic collapse: are these Brazil’s only choices?

Over the past few days, public debate in Brazil has been dominated by a conundrum created by the Covid-19 pandemic: should the country agree with state governors and drive its economy into recession to contain the spread, or should Brazil follow President Jair Bolsonaro and accept the casualties as inevitable side effects to save the economy. Neither side seems to be open to a middle-of-the-road solution.

The argument we explained on March 25 grew stronger after Brazil’s Central Bank presented a chart hoping to “prove” that stricter containment measures would cause the steepest economic downturn the country could face. “It is a fact that, the more public policies you do to flatten the curve of new cases, the more restrictions to job offers you create and, therefore, you deepen the economic recession,” said the Central Bank’s Economic Policy Director, Fabio Kanczuk, during a presentation of inflation perspectives.

Questioned by The Brazilian Report on how this situation applies to the Brazilian population, and on which data or economic model it is based on, Central Bank officials limited themselves to refer us to a collection of papers called “Mitigating the Covid Economic Crisis: Act Fast and Do Whatever It Takes”, published by think tank Center for Economic Policy Research (CEPR).

Professor Pierre-Olivier Gourinchas, author of the article “Flattening the pandemic and recession curves” — one of the articles on which the Central Bank’s projections are based — explained to The Brazilian Report that it is actually an analysis focused on advanced economies, with “no equations and calibrations based on economic principles or historical empirical evidence.” According to the professor, since “very little data is available at this stage, the analysis is informed by the experience of previous crises, broadly defined.”

In his presentation, Mr. Kanczuk reckoned that scenarios are being reviewed all the time, and that the economic picture used on the report is...