Brazil's Economy and the World Cup

Yesterday marked a year until the World Cup begins, while the Confederation Cup kicks off on Saturday. So from here on out, it's "will-Brazil-be-ready," imagina na Copa, on full blast. But the most interesting story to watch long-term in Brazil is quite another, though the mega-events do play a role.

The image of Brazil's booming economy has been slowly eroding, and not just in the international media. The promise of sweet-talking politicians and the illusion that everything is fine seem less likely to outsiders; in the past few years, I've lost count of how many officials and politicians I've heard painting the same rosy, though not entirely accurate picture. But for Brazilians, too, confidence has been falling and they're spending less. It's not just slower growth, or delays in infrastructure projects. It's also creeping inflation, the possibility of stagflation, and a gradual rise in consumer debt along with higher costs of living. Unemployment, which has been at historic lows, has been increasing slightly.

In Brazil for the last few years, perception and hype have been an important part of Brazil's economic story. Inflation has been one of the big drivers of revealing a reality the government has been eager to downplay. The massive sums of money the government is spending could be coming under closer scrutiny. 

This month, protests broke out in São Paulo and Rio, as well as Goiânia, Natal, and Florianópolis, over a rise in bus fares. It's not only a sign of growing discontent with the increasing cost of living, but also a reaction to a lack of a convincing policy response to growing inflation. As El País pointed out: "Not even in the face of big political corruption scandals did people [protest] in the streets. Once again, what's happening here is the famous quote attributed to Bill Clinton: 'It's the economy, stupid.'" While it's not true that Brazilians haven't protested corruption scandals, the manifestations are another sign that the cracks are beginning to show in public perceptions of the economy.

Also, the idea that an improved economy would bring down crime levels is one that has yet to be seen, especially in the country's two biggest cities. Ahead of the mega-events, Brazil launched its biggest border security operation ever, bought anti-aircraft tanks, and plans to fly drones over stadiums in Rio and Brasília. But the head of Abin, Brazil's intelligence agency, said last month that regular crime is a bigger concern than terrorism during the mega-events. Certainly, for Brazilians on a day-to-day basis, that's the case. In Rio state, murders, muggings, and car thefts all rose in April compared to the previous year. In São Paulo, robberies followed by murder increased 74 percent during the first four months of 2012; crime and insecurity are hot topics in the city.

So now the big games are coming, a time for the government to continue promoting this vision of a booming Brazil. But with much of the infrastructure for the mega-events funded by the government, some Brazilians may cast a critical eye on the investments being made. The cost of stadium construction and renovations alone stands at $3.3 billion, and could go up more. Could these same stadiums remain as a symbol of the golden days of the boom and misguided public spending? Economist Luciano Sobral, also known as the Drunkeynesian, thinks so.

"Evidently, it won't only be the 'arenas' that will have screwed the country, but I see them as the main symbols of a combination of arrogance, exaggerated optimism, poor planning, and swindling that are bringing Brazil down," he wrote. "The decision to put money (much of it public) into football stadiums will be seen as the sign marking the height of a cycle in which Brazil imagined itself to be on an inevitable path to becoming a rich country, only to realize a few years later that we'd had little more than luck to produce, for a time, what the Chinese wanted to buy in large quantities." He ends on an even more pessimistic note. "In the future, when I walk through the ruins of those arenas with my future grandchildren, I'll use the stadiums to tell...the story of how during my generation, Brazil screwed itself over."

I'm a bit more hopeful. I'd like to think that the bus fare protests are actually a good sign--that people are more invested in accountability. It's a little too late to cut the costs of the already overbudgeted stadium projects, but with an election year ahead, it remains to be seen if bread and circuses will win out.

 

Comments

[PTRio]

The battle to win votes will almost always win out over sound economic and/or social policy. That is, unfortunately, a universal fact. How can a government claim to be serious about fighting inflation when Dilma just announced a new program which will provide R$17 Billion in low cost financing (R$5k per family, 5% ANNUAL rate, 48 months to pay) for those in the Minha Casa, Minha Vida program to buy "kitchen appliances", the definition of which includes digital TV sets, computers, sofa's and beds. Also announced yesterday was a "mega investimento" in Rocinha, including a ski lift (gondola similar to Alemao) daycare center and sewage system. I am not saying these will not be of benefit to Rocinha residents (and in the case of sewage treatment for those of Sao Conrado too) but in times of high inflation, big spending programs are usually deferred. On the other hand, to have visible progress by election day is, it seems, a higher priority.

Brasil has a noose around its neck. That noose is called the "Brasil Cost", the fact that pretty much everything costs more in Brasil due to higher inefficiency, taxes, regulatory burdens, and profit margins, coupled with inadequate infrastructure for moving products to markets or to export facilities, and the woefully inadequate port facilities and surrounding infrastructure.

While life has visibly improved for many Brasilians over the past five years, it could be improving significantly more. Negative economic cycles are a fact of life, planning must take those into account instead of simply planning for the most optimistic scenarios. The State of Rio thought it had locked in a huge revenue flow from offshore oil royalties, and made plans assuming the best case scenario. Now, that has changed but I have not heard about any planned cut backs or cancelled projects.

Brasil is going to face some challenges over the next few years which new stadiums will not help resolve. Privatization of some publicly owned facilities can help, if done intelligently. The recent ports proposal contained an automatic 50 year renewal, thank goodness Dilma vetoed that! The Dollar/Real exchange trend (weakening Real, and it could be much weaker without Manteiga's near continuous meddling, is saying things are going to get worse for Brasil before they get better. Perhaps fewer shopping trips to Miami or New York? Naw, spend it while you got it!

[Lisa Kauffmann]

It was only a matter of time before the bubble was going to burst. It is unsustainable. The prices of basic food (cesta basica) has skyrocketed. Real esate is more expensive in some neighbourhoods than it is in cities such as NY and London.Public money used to renovate Maracana, only to have Eike Batista come along and buy the concession for a song.
Mensalao, laranjas, ficha limpa, pizza.

Brazil is , unfortunately, on its way back to hyperinflation and probably another dictatorship (but this time by left wing ex guerrillas).

It is a shame because they have said for years that Brasil is the country of tomorrow, but that tomorrow never comes.