Can Brazil overcome its biggest problem?

It is important to examine the causes of the South American nation's most recent recession, as well as point towards some potential signs for economic and social recovery

Can Brazil overcome its biggest problem?

Leer en Español: ¿Logrará Brasil superar sus problemas internos?

The Brazilian 2015-2017 recession represents the worst economic crisis that the South American nation has endured throughout its history. Total levels of output decreased by 3.8% in 2015 and by 3.6% in 2016. 1.5 million jobs were wiped out in 2015 alone and 2016 ended with a 12% unemployment rate, affecting 12.3 million Brazilians.

What caused the crisis?

The World Bank notes that the period from 2003 to 2014 represents Brazil’s strongest economic and social development phase to date, with 29 million Brazilians escaping poverty and achieving a GINI index reduction to 6.6%. During this time, the bottom 40% of its population saw its income increase by 7.1%.

The 2010 presidential elections were characterized by hopes for further social improvement. Dilma Rousseff represented the leftist party “Partido dos Trabalhadores” and promised a government with a strong commitment to eradicating poverty while offering better opportunities to everybody. She was elected as the first female president of the Federal Republic of Brazil with Michel Tamer becoming her vice-president. She was also the preferred candidate of Luiz Inácio Lula da Silva, the first president from Partido dos Trabalhadores in the nation’s history.

Who was really leading the nation?

When President Lula da Silva served his first term in office starting in 2003, Dilma Rousseff was part of the board of Petrobras, Brazil’s national oil company, a position which she kept until 2010.

The relationship between the two acquired a great importance after the Federal Police of Brazil revealed in 2014 how the government was involved in systematic acts of corruption alongside Petrobras. Bribes were accepted by government officials in exchange of inflated construction contracts. The criminal system was later dubbed the “Patrolao” - Operation Car Wash

Action by the Brazilian police led to the disclosure of further corruption rings of 9 big construction firms including the company Odebrecht, which resulted in a Latin American wide scandal. The relation between Odebrecht and Dilma Rousseff’s government was established through Marcelo Faria, the first person to be convicted in the case on Odebrecht, who revealed handling 40 million dollars to Michael Tamer for a Petrobras related construction deal, the very same Michael Tamer who currently serves as the President of Brazil

Implosion and recovery

The corruption scandal affected every corner of Brazil’s political sphere, among the ones found guilty of some kind of irregular activities were 64 members of congress, 3 governors and 8 cabinet members. Inacio Lula da Silva was imprisoned and Dilma Rousseff was impeached on August 31, 2016.

Popular unrest followed the discovery of the enormous corruption network. Fitch, TE, Moody’s and S&P gave negative outlooks for the Brazilian economy throughout 2016. Inflation spiked from 6.41% in 2014 to 10.67% in 2015 as international investors flew the nation in fears of their money becoming implicated in the scandal.

The Brazilian Central Bank reacted by cutting the interest rate by 9 periods down to 7.5%, the lowest rate since 2013. Reacting to the news, Forbes reported that “if you´re a Brazilian business, the central bank is not your only refuge, your clean towel; it is your metaphorical Obi Wan Kenobi: they're your only hope”.

Brazilian GDP has recovered throughout 2017 and President Michael Tamer intents to open the country to the international markets in order to further strengthen international investment.

 

Latin American Post | David Eduardo Rodríguez Acevedo

Copy edited by Susana Cicchetto

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