Brazil’s Economic Recession
Brazil began the 21st century on an almost exclusively positive note. Before Brazil’s economic recession, people included it in the same conversation as Russia, India, China and South Africa, leaders of the developing world and countries poised to make considerable economic gains in the decades to come. The first years of the 2000s reinforced that perception, as Brazil’s economy continued to grow and expand. This prompted a bid for both the 2014 FIFA World Cup soccer tournament and the 2016 Olympic Games. In 2007, FIFA granted Brazil the event, and in 2009, the International Olympic Committee announced Rio de Janeiro as the host for the 2016 Games.

Economic Depression

These highly visible international events combined with the emergence of Brazil in the international arena seemed to legitimize the country’s efforts. However, after Dilma Rousseff took over for the highly popular Luiz Inácio Lula da Silva, government spending ballooned, partly due to the infrastructure required to host international sporting events. Under her direction, Brazil suffered its worst economic depression on record.  The government’s spending, combined with mismanagement of inflation, a decrease in consumer spending and the sharp decline in oil prices in 2015, produced a two-year slide that embodied Brazil’s economic recession, and poverty naturally increased as a result of all of these factors.

 This sharply contrasts with the efforts that Lula da Silva undertook to mitigate poverty and economic hardship as the leader of Brazil’s Workers’ Party, lifting 36 million people out of poverty. In a resounding success for him and Rousseff, by 2014, unemployment reached its record low, the U.N. removed Brazil from its Hunger Map, and the number of people living during Brazil’s Economic Recession in poverty dropped to 5.2 million. In 2017, however, more than 14 million people found themselves homeless and in extreme poverty, according to the World Bank’s definition of less than $1.90 U.S. a day. The situation was more grave than just poverty and homelessness, as a study conducted between 2012 and 2017 intimately linked the effects of Brazil’s economic recession and poverty with adult mortality. It found that there was an uncanny correlation between the state unemployment rate and the mean municipal mortality rate.

Reasons for Brazil’s Economic Recession

How did a country with such promise and success completely reverse course and regress so quickly, resulting in Brazil’s economic recession and poverty? Dilma Rousseff increased public spending upon entering office in 2011, raising the minimum wage and promoting expanded lending by the state’s banks. Simultaneously, the central bank’s discount rate dropped, sparking inflation which Rousseff exacerbated by cutting sales tax and lowering prices on food, gasoline and bus fares. One entity hurt most by this was Petrobras, the Brazilian state-run oil company, as investments stalled. Rousseff boosted wages to combat inflation, but this did not work. Inflation outpaced wages and resulted in inhibited consumer spending. When oil prices fell in 2015, the dollar strengthened and companies cut production and jobs as the currency-the real-collapsed, increasing the expense of imports and further raising inflation. To make matters even worse, Brazil experienced a political crisis in the midst of this, as the government impeached Dilma Rousseff for improperly moving government funds between budgets, and threw Lula da Silva in jail for corruption.

Looking Forward

The peak of the crisis came in 2017, and the economy recovered to its 2014 level, but experts caution against optimism. A BBC article in May 2019 identified four things wrong with the Brazilian economy, recession and poverty. It said that no economic recovery lies on the horizon, unemployment still runs rampant at 12.7 percent, the election of Jair Bolsonaro did not bring the anticipated market rally and the fiscal deficit still grows. It looked in May like the worst would occur, as the country’s Gross Domestic Product shrank by 0.2 percent during the first quarter of 2019, even though it aligned with the forecasted 0.5 percent annual growth.

 Much to the relief of many, the second quarter provided a rebound of 0.4 percent, a surprise to those most knowledgeable in Brazil. Little consolation came to President Bolsonaro, though, as his reform agenda did not produce the immediate results he had hoped. Still, his administration intends to focus on reforms to pensions and the government’s overall structure, to the praise of the International Monetary Fund. The IMF said that these reforms could boost the Brazilian GDP by 2.4 percent in 2020 and that Brazil could make more improvements with an opening of the country’s tariff and non-tariff barriers and a commitment to closing the infrastructure gap. Reuters agrees that the future of Brazil as an economy and emerging market hinges on fiscal reforms, that will hopefully put the last five years of Brazil’s economic recession and poverty behind them and return to the pace that Lula and Rousseff set.

– Alex Myers
Photo: Flickr