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Brazil, Article: Brazil in the Downward Spiral
By
Carl Moses
, from Frankfurter Allgemeine Zeitung, Frankfurt am
Main, Germany, August 18, 2015
The renewed mass protests in Brazil are showing, that Chancellor Angela Merkel is visiting a
country in turmoil this week. The economic and political crises are mutually shaking up each
other and throw the largest economy in Latin America in ever more intensive turbulences.
Brazil is in the heaviest and probably longest recession since decades. After three weak years,
the GDP 2015 shall probably shrink by more than 2 percent. For 2016 a further decrease is
being forecast. The Real, which has lost a quarter of its value versus the U.S. dollar since the
start of the year, is further under pressure by the devaluation in China. When in a while also
the interest rates will increase in the USA, then the situation might further deteriorate.
Already there is talk about a new “lost decade”, like the one in the eighties.
Lost and in a way wasted was also the past decade, which had presented to Brazil, during the
raw material boom, a previously not experienced upturn and the blossoming creation of a new
middle class. Because, in spite of all the increase in the standard of living, the leftist blue
collar worker party PT has missed it, to create a basis for sustained growth and stability.
Brazil’s worldwide appreciated Expresident Luis Ignácio Lula de Silva had made sure from
2003 to 2010, that this time at least many Brazilians got a small piece of the cake. But his
economic model, totally concentrates on the growth of consumption and the internal market,
quickly lost its glamour, when the raw material boom came to an end.
Now, when the revenues from the exports of ore and soy beans, are less opulent, the deficits
of Lula’s politics are showing up - and rather more the mistakes of his politically favored
office follower Dilma Rousseff since 2011. Lula had still maintained the three pillars,
inherited from his predecessor Fernando Henrique Cardoso - solid budget management,
control over inflation by way of interest rate policy, and the flexible exchange rate. But he did
not address overdue structural reforms like the streamlining of the intolerable taxing system.
The urgently necessary modernization of the infrastructure remained stuck because the
government could not manage alone the building of railroads, seaport harbors and power
plants, and because it did not offer attractive participation possibilities to private investors.
And because the state controlled petrochemical group was overextended with alone operating
the new oil fields and with restrictions when building a new local supplier industry, the rise to
a global oil power still remains a dream.
Under Lula’s successor Rousseff also the stability anchor was removed. The annual
government deficit already exceeds 8 percent of GDP. The central bank base rate was lowered
too strongly and for too long. Now, when the inflation is advancing towards 10 percent, the
interest rate must be raised by so much more. The exchange rate was kept low for too long as
well as the prices for electricity and gasoline, in order to artificially suppress inflation. Now,
so much more painful corrections are necessary.
Only after her reelection in October 2014, Rousseff did change her economic course, when
the exacerbation of the crisis left her no choice. The fact, that Rousseff now allows the
Chicago-liberal banker Joaquim Levy as finance minister to execute the austerity policy,
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