BRAZIL IS FACING A CHALLENGE

upa-admin 22 Mayıs 2015 808 Okunma 0
BRAZIL IS FACING A CHALLENGE

The political and economic tension is observed in Brazil where the economy has been developing rapidly for the last two years. The protests, demanding the rational use of budget expenses in the wake of the FIFA World Cup 2014 and the improvement of social services, were staged against the government led by Dilma Rousseff, the member of the Workers’ Party and the president. Availing itself of the international focus on the big sports event in Brazil, the leading Western media broadcast the full coverage of the country’s social problems. From this viewpoint, this period was marked by the raw resource demand shrinkage at the world markets, the income decrease in Brazil as one of the major oil exporters in the Latin America following the oil price slump, the prolonged protests and another, yet more strenuous victory for Dilma Rousseff in the presidential election.

The next Olympic Games in Rio de Janeiro will be held in 2016, therefore the news from Brazil will be in the international media focus for quite a long time.

Economic stagnation period

As no growth in the world economy is expected in 2015 and while, on the contrary, 1 % decrease is anticipated, Brazil faces the worst result in the last 25 years. Moreover, the unemployment grows while the inflation has passed the 8 %-mark reaching the maximum for the last years. Brazil’s central bank raised the interest rate up to 13.25 %, thus the central bank’s debtors will have to pay back a higher interest rate. Even if this step was aimed at preventing further inflation, it had a negative impact on the investors, especially the mid-size and small businesses.

In addition to the country’s finance cuts, the high rate of the USD-denominated debt makes Brazil one of the economies most sensitive to the US financial policy impacts (see: Brazil’s real buffeted by speculation over US rates / “Financial Times”, 7 May 2015). The dollar grows as the US Federal Reserve System sticks to the policy of the dollar’s supply shrinkage, linking it to the country’s excessive growth. As the US dollar is growing against most of the world currencies, the Brazilian real is rapidly slumping too.

The experts link the stagnation in the Brazilian economy with a number of factors. One of them is the slowdown of China’s economy affecting Brazil and other regional countries’ demand for the raw materials, thus the prices are falling. Another reason is that the probable interest rate rise in the US has thrust the outflow of the international assets out of the country. The other reasons are the government’s excessive intervention into the economy during the presidency of Dilma Rousseff, low petrol and energy cost, financial expansionism as well as benefits for the private investments. The economic expectations have not been met eventually but instead the business investment decreased and the private sector suffered a blow (see: Brazil is suffering from recession and scandal / “Financial Times”, 4 May 2015).

The newly appointed finance minister, Joaquim Levy embarked upon the austerity measures to fill Brazil’s financial gaps and maintain the country’s favourable investment rating. For instance, some reforms promoting the growth as well as the increase of infrastructural concessions were postponed. On the other hand, by cutting down the social programmes, the new minister makes a shift in the Brazilian socially-oriented development policy. It is expected that $26.4 billion expenses will be cut down, the taxes and loan interest rates as well as the energy resource prices will be raised to prevent the budget cuts in 2015 (see: Бразилия: политический кризис и жажда перемен? / “Russian Council”, 30 April 2015).

The stagnation in the Brazilian economy has also had its impact on the country’s economic position in the world. Great Britain ousted Brazil off the sixth position from the world’s top GDP list in 2014. And in 2015 India is expected to take on Brazil at its current 7th position.

Generally, the austerity policy is not expected to be harmless yet it will yield its rational results starting next year. Either way, given the eurozone countries’ experience in the recent years, the austerity policy can turn into a process which adversely and negatively affects the entrepreneurship and the population’s way of life, therefore raising the social resentment. On this account, if the lessons from quite sensitive and negative experiences are learned, the Brazilian government’s rational performance in this situation may save the country from the debt crisis and sudden unemployment surge.

Besides the worsening macroeconomic performance, the corruption scandal has recently become one of the frequently debated subjects in the Brazilian agenda. More than 2 billion reals (approximately $661 million) were reported to disappear from the accounts of the state oil company “Petrobras” because of corruption. Overall, the company’s financial losses totalled 51 billion reals (approximately $17 billion) in 2014. The country’s economic stagnation and the scandal at the state oil company were a blow to Dilma Rousseff’s reputation. Her recent rating went down to 12-13%.

Political tension and protests

As mentioned, protests have been frequent in Brazil for the recent years. The protests also continued in March and April this year. The government’s economic policy is shown as the main cause of the protests demanding the military coup and presidential impeachment. Consisting mainly of the middle class, the protesters support the economic and social liberalization, the decrease of the state intervention in the economy, and the development of more favourable possibilities for the private sector.

There are also relatively varying approaches on the cause of the recent protests in Brazil. Some experts think that the economic policy by the centre-leftists governing the country since 2003 has resulted in the income growth for the poor and working class making up the majority of the population, as well as the gradual income equalization between the rich and the poor. This is why the middle and upper income classes as well as the elite were concerned with the reelection of Dilma Rousseff who continued the socially-oriented policy in 2014. It is not ruled out that if the country’s economic state worsens, the poor class will join the protests against the Rousseff government too (see: Who’s Protesting in Brazil and Why? / “Centre for Research on Globalization”, 9 April 2015).

Jim O’Neill, the economist who coined the “BRIC” (he doesn’t include South Africa here) concept in 2001 for the fast growing economies of Brazil, Russia, India and China said that if the economic stagnation and regression in Brazil and Russia continued up until 2019, the presence of these two countries in the acronym would not be possible (see: BRIC in Danger of Becoming ‘IC,’ Says Acronym Coiner O’Neill / “Bloomberg”, 8 January 2015).

Unlike Brazil and Russia, the rapid growth still continues in the Chinese and Indian economies, while South Africa’s economy shows stable yet slow growth. Despite some gloomy forecasts on the BRICS future, advancing on the path of establishing a united currency fund, this block of countries attempts to demonstrate consistency in setting up an alternative economic system. Either way, these countries’ future economic results will define the feasibility of BRICS’s goals.

Newtimes.az

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