Current State of Affairs in Brazil from Socio-Economic and Political Standpoint
Brazil is currently facing enormous political, economic and social problems. There is economic recession, extensive corruption, increasing inflation, public debt, and ineptitude of government. It seems only significant changes in governance can reverse this woeful condition.
Many Brazilians believe this state was produced by imprudent policies of President Dilma Rousseff’s administration during her first term. She made the mistake of listening to her advisers from the left-leaning Workers Party. Their economic choices were guided predominantly by distorted political goals. These included gathering electoral majorities by distribution of excessive but inadequately funded social programs. These were aggravated by shameless dishonesty.
Rousseff was reelected last year. However, she is reeling from a decrease in popularity of more than 20 percent. This was attributed to the high-profile corruption scandal in the government-owned oil firm (PETROBAS). The economy of Brazil is in deep trouble if this corporation does not recover. Since the scandal broke out, the share value declined 60 percent.
The Brazilian President opted to concentrate on the economic challenges that her country was facing. Brazil is the biggest Latin American economy with a $2.2 trillion Gross Domestic Product. It is also the seventh largest economy worldwide. Brazil’s economy grew rapidly beginning 2004 until 2010. This was propelled by demand for products like crude oil, ore, iron, meat, soybeans, and sugar. The foremost importer was another economic powerhouse which is China. Unfortunately, prices of international commodities declined compelling the government to balance flailing global demand. It bolstered local consumption and protected domestic commerce.
President Rousseff adopted a liberal monetary strategy and implemented interim incentive packages. More than these, her government introduced an innovative trade policy called “BRASIL MAJOR” or Bigger Brazil. It consisted of tax reduction schemes with funds provided by the Brazilian Development Bank for local manufacturers. Imports were restricted to make way for goods produced in the country. These steps helped curb unemployment but were not enough to spur economic growth. Said economic measures pushed inflation upward, weakened the purchasing power of consumers and curtailed competitiveness. As a result, the Brazilian Central Bank was forced to bring down interest rates to exceptional lows.
Political Scenario and Government
One of the foremost concerns confronting overseas investors in Brazil is widespread corruption in government offices. Nonetheless, levels of political risks are lower compared to other Latin American nations. Insurance for political risks is applicable only for industries which are heavily regulated such as energy and mining. There are minimal threats of political violence but crimes such as kidnapping for ransom have increased. Urban hubs such as Sao Paolo and Rio de Janeiro were affected initially although crime rates have also gone up lately in smaller cities. Even minor felonies are on the rise while law enforcement is relatively inefficient.
Mass protest actions went out of control in 2013 with more than one million citizens taking to the streets in June. Brazilians from 80 cities protested against the government’s inaction to meet the needs of the people. Their main complaints were against growing poverty, high cost of living, inferior healthcare services, poor transportation system, and pathetic public education system. Inequality was also excessive based on global standards. These demonstrations eventually subsided but smaller rallies take place every now and then. Regardless of these conditions, socio-economic conditions improved during the last 10 years even as social differences still occur.
Reaction of International Observers
The international business community and other independent analysts gave various comments about the macro-economic environment of Brazil. Growth forecasts until the end of 2015 pointed out that Brazil will prosper by only 2.3 percent because of the slowdown in domestic, structural and external issues.
The past and present Presidents of Brazil (Luis da Silva and Rousseff) were influenced partly by development economists. The Brazil Major Program emerged as the crucial structural platform not merely for economic growth but more importantly for governance. This approach was made up of funding mechanisms for the state to advance local production, export commodities and technological innovation. In effect, the government’s concentration was on import substitution instead of the usual modernization. The only exception was for the bio-fuel sector.
Overall, foreign observers noted that Brazil still continues to stare at the specter of insufficient competitiveness as well as greater than ever de-industrialization. The policies supposedly being implemented by the present administration failed to resolve these problems. On the contrary, current policies merged markets in specific industries with incentives for local production. There should be additional investments on infrastructure, technology and education. Otherwise, the economy may not really take off.
The stigma of corruption has not been removed in the light of the PETROBAS issue and all the while President Rousseff’s popularity is going down despite her reelection last year. With these scenarios, Brazil is not getting off the ground anytime soon.