Brazil, the South American giant is sick
Once upon a time there was the B of the so-called BRICS, and a star among emerging countries. In fifteen years, Brazil's wealth grew six fold making it the seventh largest economy in the world after France and before Italy. Thanks to a sustained boom in exports and record capital inflows, the strongest economy in South America even lent money to the rest of the world. By exporting soybeans and sugar — becoming their largest exporter in the world — and especially oil, Brazil was able to accumulate reserves 10 times higher than it had in 2003 when Luiz Inácio da Silva, Lula, was elected president. Also leaving from its ports were iron, coffee, wood pulp, poultry and aircraft engines, aircrafts, helicopters and space shuttles.
- Tuesday, 22 September 2015
Over the last couple years, however, citizens, the international press and observers and, lastly, rating agencies all agreed that things got messy. Unemployment rose to 8.3% (56% in 12 months), inflation topped 9.5 percent, and its GDP, which recorded a 7.5% growth in 2010, increased last year by a meager 1%.
The coup de grace came in early September with Standard & Poor's' downgrade of its government bonds to junk, that is, good for speculators. Only a few hours earlier, the economy minister, Joaquim Levy (an alumni of the Chicago school), had told IstoÉDinheiro that if the country lost its investment grade creditworthiness, "after picking up the pieces, [a recovery] would have been much more difficult."
The downgrade came just as Marco Aurelio Garcia, the foreign policy adviser of President Dilma Rousseff, was in Washington defending the nation's solvency and reliability despite its worst recession in 15 years and rampant corruption scandals.
Brazil suffered also from a perverse alignment of the planets above parts of the world economy. First and foremost, oil prices fell by 59% in just over 12 months from $115 to $40 a barrel owing to a weakening demand and to increased supplies. Demand for the other commodities Brazil exports collapsed as well, partly because of weakness in China. Furthermore, Beijing put an end to its loose foreign investment policy.
Brazil's other main trading partner, the US, allowed a strengthening of the dollar with a turn in monetary policy. A higher dollar meant more expensive imports and, more importantly so, higher priced dollars to finance investment and reserves. All of this raised questions about some fundamental fragilities of the Brazilian economy, which in turn triggered capital outflows, and thus the collapse of the currency, the real, which lost 38% of its value against the dollar in just 12 months.
"The problem in Brazil today, for the government and the parties that support it, but also for the opposition," said candidly in an interview with El País García, "is that no one knows where it is going." Besides having "made mistakes", the Workers Party government was not able to leverage on reforms implemented in recent years. "For Lula it was easier because his very rise from worker to president perfectly symbolized Brazil's powerful emergence and its lifting 42 million people out of poverty."
The crisis is now much more difficult to solve as it is also deeply political and moral. One of the phrases most commonly heard among Brazilians is that "the country and the government have stalled": its 39 ministries and a host of parties are all inefficient. The approval ratings of President Lula's protégé fell below 10%, while Lula's was 80% when he left power in 2010.
Willing now to introduce those austerity measures that Rousseff dismissed as "neoliberal" during the election campaign in early 2014, their party, the PT, cannot count on the support of neither the Salão Verde of the Chamber of Deputies or of the Salão Negro of the Senate nor on its hitherto coalition ally, the PMDB.
More than anything, however, citizens feel betrayed by politicians in whom they had placed much hope and who could prove corrupt. The worst scandal is Petrobras', the oil giant public by 51%. According to an insider, bribes over time could have amounted to $3 billion. The list the Prosecution handed over to the Supreme Court includes a former president of the nation, the current Speaker of the House and that of the Senate.
The punch in the stomach to the citizens came, however, when Lula was accused of influence peddling in favor of the largest Brazilian contractor, Odebrecht, and when people realized that in the seven years under probe, head of Petrobras had been president Rousseff.
She is denying any involvement, but many in the country want her impeachment. The same call came from the three massive demonstrations — the largest since the end of the military dictatorships thirty years ago — the last taking place in mid-August. Up to 1 million people took to the streets in 25 states demanding "Out Dilma!", "Out the Pt!", "Lula and his 40 thieves" and "Give us back our Brazil". Summoned by social media rather than by the opposition, demonstrators made clear where they place themselves politically, firstly by wearing the national colors yellow and green, and secondly by stating: "We're not the elite, we are not the right, we are Brazil".
Impeaching "Dilma" would put in the government the vice president, I am told by very informed students, like many other segments of the population. "Best would be to entrust the government to someone less involved." A President's Impeachment would also tarnish even more Brazil's international image.
No one bets on either ending of Dilma Rousseff's mandate (due in 2018) but "Brazil always finds a jeito, a way to work things out," said Monteiro. Matter of fact, Tuesday, September 15 the government unveiled its plan to stop the bleeding: 17 billion of spending cuts (non-linear) and shutting down 10 ministries. Will that suffice?
Tension stays high in the thirty-year-old South American democracy. And in under a year all spotlights will be on it when it will host the Rio 2016 Jogos Olímpicos.