Lessons Unlearned From Brazil’s Recession

As she was sworn in for her second term last week Dilma Rousseff publicly stated government spending would have to be cut. Yes, you read that right; the leader of the Workers’ Party just said her own administration is spending too much taxpayer money. It might be a day late and a few billion dollars short, but could it be Brazil’s president just had her Eureka moment? Years of spending billions of dollars on stadiums and infrastructure for a 4-week event has left the Brazilian government with little to brag about. While the world has moved on to other things the World Cup’s relics lie mostly unoccupied in a land of poverty, police corruption and gang violence. After the artificial boom created by said event the bubble has definitively burst. Yet to hear one of South America’s most adamant cheerleaders of government intervention admit to it is remarkable to say the least. Government figures show Brazil’s economy had already fallen into a recession before the World Cup even got underway. This year the central bank expects the economy to grow by a dismal 0.38 percent while inflation hovers north of 6.5 percent, well above the 4.5 percent target rate. Industrial production is forecast to expand by no more than 0.7 percent, with the country’s current account deficit widening to $78 billion. Predictable though the downturn may be, its sheer magnitude is forcing the Dilma administration to consider some rather uncharacteristic measures. Or is it? The budgets of a few dozen ministries and some secretariats may be cut by one-third, reportedly amounting to some $700 million in savings, the new Finance Minister Joaquim Levy was quick to add expenses listed in the constitution will be unaffected – a constitution about as thick as Ayn Rand’s novel Atlas Shrugged, by the way. …

Is Brazil Sitting On a World Cup Bubble?

Just hours before the opening ceremony of the World Cup last Thursday, protesters clashed with police in the streets of Sao Paulo and Rio de Janeiro. Striking airport workers and teachers also made the headlines, seeming to confirm the concerns many Brazilians have about civil unrest during the tournament. Now that the spotlight is on Brazil for an entire month, different groups of disgruntled citizens are expected to attempt to garner international attention for their cause. The first protests were largely sparked by the billions in taxpayer money that have been spent on stadiums and infrastructure in a country whose GDP per capita is below that of Venezula and Iran.  In order to be able to claim that the stadiums were financed by private construction firms, Brasilia lent money to them at astonishingly low interest rates, less than half the going rates. Coupled with the fact that politicians are notorious for their cozy relationships with the construction sector, it is no surprise that no self-respecting Brazilian believed these claims. An Audit Court report released last May found $275 million in alleged price-gouging for the Brasilia stadium alone. Just like four years ago in South Africa the stadiums have become known as “white elephants” for their huge cost before, and uselessness after the tournament. The city of Brasilia has no major professional team to use the stadium after the World Cup, while the $270 million Arena da Amazônia in Manaus is so remote that construction materials had to be shipped up the Amazon River because no trucks could reach the place. So, despite the fact that no team would even consider playing their home games there, that’s just where the Brazilian politicians decided to have their cronies build a stadium. Needless to say, the surge in government spending in the last months and …