Brazil Situation Report – November 2015

From Rising Star…

From 2000 to 2010, Brazil was one of the globe’s fastest growing economies. Under former president Luiz Inacio da Silva, the economy underwent various reforms, including changes to the social security and tax systems. The leadership invested in administrative systems and policies were created to increase export, trade, and local industry. Many of these changes have removed a lot of Brazil’s vulnerability – exports were growing by 20% per year and the domestic debt was cut in half.

Brazil Situation ReportOn top of building a powerful economy, Brazil has adopted a strong democracy in the past decade, reducing poverty and increasing its global profile. Brazil is a member of the United Nations, the G20, Organization of American States, and the Latin Union. The country acts as an obvious regional power, using its recent economic boom to grow development aid to other countries. The total aid provided by Brazil each year is estimated to be over $1 billion.

In 2001, the country was identified as part of BRIC, which stands for Brazil, Russia, India, and China. The acronym was used by economists to show the possible shift in economic power worldwide – from Western nations to the developing world. The projections for BRIC countries vary; with some saying that BRIC could overtake Western economies by 2027, while others conservatively estimate this may not happen until 2050.

…To Disappointing Downturn

From 2011 to 2013, when new President Dilma Rousseff was first elected, the economy continued to grow at a rate of 2.2% per year. Unfortunately, it barely grew at all in 2014 and it is expected to shrink by 3% in 2015. In July of this year, the unemployment rate rose to 7.5%, which is the highest jobless level in more than five years. Furthermore, the rise in inflation is eating into wages, which fell by 2.4% from July 2014.

Rousseff’s administration has faced growing criticism after World Cup preparations in 2014 included extravagant projects that were devised when the economy was surging, or were simply over-budget. Despite widespread disapproval, Rousseff was re-elected for a second term in October 2014. When Rousseff was first elected in 2011, she was strongly supported by former president Da Silva, an amazingly popular president who oversaw Brazil’s tremendous growth. However, now that President Rousseff is in office for a second term, she is pursuing austerity policies she had previously avoided, generating criticism from her own Workers Party.

In late September, economists noted that the abrupt drop in Brazilian currency may be the reason that companies are pulling out of deals and public offerings are slowing. So far in 2015, the Brazilian real has dropped 33% against the U.S. dollar. This drop is not unique to Brazil: many currencies are dropping in value because of China’s slowdown and a decrease in commodity prices.

Economic Woes Increase Inequality

Despite high rates of growth in the past, Brazil has always had a problem with income inequality. The richest one percent of the population, about 2 million people, has 13% of all household income. This percentage is similar to the poorest 50 percent in Brazil – about 80 million people.

Many factors contribute to inequality in Brazil. Most of all, economic development exists at different levels in urban and rural areas, making it harder for the poor to gain access to education, healthcare, and infrastructure. The general low level of education in Brazil has become an overarching issue because it limits the opportunities available to low income groups, making it almost impossible to narrow the income gap.

However, in the past twenty years, Brazil’s healthcare system has been dramatically reformed and improved. The universal healthcare coverage program, Sistema Único de Saúde, is attempting to meet the government’s obligation to make healthcare a human right for all Brazilians. The system is comparable to the United Kingdom’s coverage, but with an emphasis on community-based care. The project has expanded every year since its inception in the late 1990s, with over 60% of Brazilians being covered.

Growing Anti-Corruption Crusade

Along with a floundering economy, President Rousseff is facing condemnation for failing to address corruption within her own government. With an anti-corruption movement arising from the middle class, political figures and business leaders are being taken down, throwing the country into chaos.

Most of the crisis stems from Petrobras, a government-controlled oil company. It’s estimated that $3 billion in bribes were paid to Petrobras executives who shared the money with politicians. The scandal has invaded Brazil’s Congress as well, with 40% of the 594 members facing corruption charges.

Brazilians Take to the Streets in Protest

Brazilians are becoming fed up with the situation – the national mood is turning sour and the economy continues to fall downward. Many politicians and citizens are turning against President Rousseff, and protests in the streets erupted in August 2015. Almost 400,000 protesters marched in Sao Paulo and Brasilia, calling for the president to be impeached among increasing scandal and a sputtering economy. This is the third major protest this year, with other demonstrations taking place in March and April 2015.

However, some of the protests earlier in the year were in favor of the president. Some say removing a democratically-elected president could cause further problems, not solutions. The Workers Party has led the pro-government demonstrations, blaming Congress instead of the president for the widespread corruption.

The president has praised the protests, defending the right to demonstrate, and has admitted she may have made some mistakes with her economic policies. Some experts say that the problems for the president will continue if Brazil’s economy further dwindles. If inflation gets worse and goes over 10%, the working class base that currently supports Rousseff could be severely alienated. After the recent protests in August 2015, the country seems to be at a standstill, unsure of how to move forward. 

To keep up-to-date on safety and security in Brazil, check out Brazil’s Risk Assessment Country Guide.

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Brazil's Country Risk Assessment Guide