speri.comment: the political economy blog

Brazil’s mounting challenges: ‘The Giant has Awakened’

The approach of next year’s soccer World Cup is putting the spotlight on Brazil at a crucial moment in its development

Giselle Datz, Associate Professor of Government & International Affairs, Virginia Tech, USA

Giselle Datz

Giselle Datz

As many watched Neymar’s skilful moves during FIFA’s Confederations Cup last month, hundreds of thousands of Brazilians were engaged in protests across the country. What started as a movement against increases in transportation fares soon became a more ambitious amalgamation of social claims sparked by corruption scandals, an ineffective Congress and wasteful expenditures on preparations for hosting the 2014 soccer World Cup and the 2016 Olympics.

In contrast to the billions of reais spent in erecting or rebuilding soccer stadiums, Brazilians see the lack of resources allocated to education, health care and security as a reason to take to the streets. As a result of the sheer volume and relentlessness of the protests, headlines, hash tags and street posters asserted: ‘The Giant has Awakened’.

In the midst of these confounding developments, some observers have highlighted how the protests are a product of a larger middle class able to articulate its discontent despite relatively high rates of employment. Yet there is more to this eventful Brazilian summer than new middle-class grievances.  What is becoming clearer is that Brazil’s international ascendance, based on its significant economic strides in the past decade, happened despite a provincial, corrupt, disengaged, and at times absurd, domestic political class.

Under former president Lula, Brazil had managed a sort of decoupling of its petty politics from its pragmatic economic agenda. But that no longer holds. Lula delegated a good deal of economic decision-making to the insulated deliberations of central bank technocrats who pushed for continuation of Cardoso’s agenda of inflation targeting, effective debt management and foreign reserve accumulation. This added credibility to Brazil’s monetary stability strategy, leading to its achievement of investment grade status.

But brewing underneath it all were significant corruption scandals that implicated the leadership of Lula’s Worker’s Party, particularly his long-time ally and former chief of staff, José Dirceu, who has since been sentenced to prison. The surprising element in this story is how Lula successfully disassociated himself from the scandal, known as mensalão. He denied any knowledge of the deals to pay monthly salaries to Congressmen who voted in favour of the government’s agenda.

For the most part Brazilians bought into the story or chose to ignore its implications. After all, Dilma Rousseff was elected in 2010, as Lula wished. Still, despite an agenda that was motivated by economic continuity, the political malaise in the country became more glaring. In a rare demonstration of institutional strength and courage, Brazil’s Supremo Tribunal Federal (STF), the country’s Supreme Court, sat in judgment on those involved in the mensalão scandal in nationally televised sessions that highlighted the firm hand of Chief Justice Joaquim Barbosa to a Brazilian public that had seldom been so interested in the work of its STF. It was largely because of this that, in the midst of protests in the last weeks of June, opinion polls made Barbosa the favourite to succeed Rousseff in the elections of 2014.  Her approval rate tanked to 30 per cent.

Although the President claimed that ‘life inside people’s homes improved a lot in the last ten years [thanks to Bolsa Família, the country’s conditional cash transfer programme]’, she conceded: ‘outside, not so much’. She also admitted that her government was unable to improve urban mobility, education or health services.

Despite her attempt to transform the ‘energy in the streets to institutional energy’, the fact is that Rousseff and her team mishandled the moment, making proposals that were unconstitutional (such as the idea for the establishment of a Constitutional Assembly), politically misguided (as in the case of a plebiscite on vaguely heralded ‘political reform’ that shifts most of the blame to Congress), or overly hasty (the President insists on implementing institutional changes before the 2014 elections).

The government’s bewilderment in the face of the protests only feeds into the now open cynicism of Brazilians toward the President and Congress and their rejection of political parties. This makes it a crucial moment for the opposition to make its case more persuasively, but also exposes its weakened position to be taken seriously regardless of its message.

Although social demands are understandably broad, Brazil’s economic challenges are quite discernible. The main one is clearly growing inflation (the 4.5 per cent centre of the inflation target has already been bypassed this year). Slower growth is evident in 2013 and is expected to run into 2014. Despite large political and economic investments in ‘South-South’ trade, an ailing Argentina and a slower (in relative terms) Chinese economy raise concerns about the trade balance. Studies, such as those of renowned economist Edmar Bacha, see a trend towards de-industrialisation also as worrisome. In addition, Standard & Poor’s lowered Brazil’s credit-rating outlook to negative in June.

In short, uncertainty about economic policy (leading to frequent fluctuations in the exchange rate), higher interest rates to contain inflation, and a deterioration of the country’s fiscal health are now feeding more negative expectations in both productive and financial sectors of the economy.

Brazil has long been known for its soccer artistry. It has been more recently rewarded internationally for its economic turn from hyperinflationary basket-case to stable and growing economy. In 2014 the country will be facing two important contests: the World Cup and presidential elections. Neither is now as predictable as previously expected before this summer’s events.

Brazil’s decisive victory over Spain in the final game of the Confederations Cup came as a welcome surprise and at least places the official team on better footing for next year’s championship. More importantly, the political surprise is that Rousseff’s reelection in 2014 is now anything but a given. Brazil’s economic record is likely to continue to be challenged by external conditions and domestic pressures. ‘The Giant has Awakened’ indeed. But can it score beyond the Maracanã? Brazilians have made it evident that their passion for goals cannot be used to soothe their appetite for change.

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