Saturday, June 22, 2013

VOXXI: A bad omen for Brazil’s President Dilma Rousseff?

A Bad Omen for Brazil's President Dilma Rousseff?
W. Alejandro Sanchez
June 19, 2013
Originally published:

It certainly was not the start of the sports season that President Dilma Rousseff was expecting. Since the start of the FIFA Confederations Cup — the first of three major sports tournaments that Brazil will host over the next few years — Brazilian citizens have taken to the streets to protest.
The head of state was even severely booed during her opening speech before the Brazil-Japan football match that kicked off the Confederations tournament.
Besides this championship, Brazil will also host the 2014 FIFA World Cup and the 2016 Summer Olympics in Rio de Janeiro.
Currently, the economic situation in the South American state is not particularly dire. In fact, the country has enjoyed growth over the past decade. Nevertheless, Brazilians decided to air their disgust for several of the government’s recent financial decisions, primarily the rising costs of public transportation and the costs of numerous construction projects that have been planned to prepare the country for the aforementioned events.

Interpreting the situation

As with anything that has to do with economics, interpreting Brazil’s economic status, both at the macro and micro level, depends on what data is analyzed.
For example, a May 31 article in The Washington Post has the provocative — and very optimistic — title of how Brazil and other emerging economies “could save the world economy.” The article goes on to explain that, even if the growth of Brazil, India and China is slowing down, it is “not necessarily a bad thing in a world that is trying to cultivate a more sustainable and less combustible era of economic expansion.”
On the other hand, the financial agency Standard & Poor’s recently changed Brazil’s economic outlook from “stable” to “negative.” Moreover, it seems that many Brazilian citizens have a different way of interpreting Brazil’s slowing pace and recent financial actions than the author of the aforementioned Washington Post commentary.
According to the Brazilian Institute of Geography and Statistics, the country’s GDP grew 1.9% in the first quarter of 2013 relative to the same period last year. The country’s economy grew at an impressive 7.5% in 2010, so the current slow pace is troubling to some analysts and the general population alike.
As previously mentioned, economic performance is interpreted differently depending on whether you are an analyst for a major financial institution in New York or a low-income citizen in a favela (a shantytown). Recent polls indicate that Brazilian citizens fear their economy is taking a turn for the worse. In one case, most respondents to a recent poll believe that they “expected health and education not to improve or worsen,” in the coming months.
The raise in the price of transportation fares has been enough to jumpstart protests across the country. Several protests recently took place in major Brazilian cities like Sao Paulo, Porto Alegre and Curitiba. These public manifestations seemed to have worked, as several cities have declared that they will reduce the price of local transportation fares.
Unsurprisingly, a less-than-ideal financial situation has hit President Rousseff’s popularity, which has slipped from 57% in July 2012 to 54% currently. At first sight, this is not a great loss, as most Brazilians still approve of the president’s mandate. Nevertheless, it is important to remember that Brazil will have presidential elections on October 2014, not long after the end of the FIFA World Cup.
Rousseff is still a favorite to be re-elected, but if the economic situation worsens — and if more corruption scandals regarding the construction projects for the sporting events explode in the coming months — her re-election bid could be in jeopardy.

Justified protests?

Besides the outrage over the increasing price of public transportation, another reason for the Brazilian protests is the concern regarding the costs of the major construction initiatives the Brazilian government has been carrying out in recent years in preparation for the international sporting events. These include the renovation of football stadiums and the construction of roads.
Unsurprisingly, there is the well-founded worry that the government is spending too much for these events, which could promote bribes and corruption among government officials who decide on which company gets these expensive contracts. In October 2011, then-Sports Minister Orlando Silva quit after been accused of accepting kickbacks for sports projects.
Certainly, the Brazilian citizenry is right to voice their outrage about the construction contracts that have been handed out and are worth millions of dollars. Moreover, yours truly would add that, as much international pedigree and good PR as these events will bring to Brazil, the aforementioned new sports venues may end up being abandoned as soon as the sports events are over.
Other cities that have hosted Olympic Games spent millions on expensive sports venues only to see that the buildings that were built specifically for them go to waste. A similar situation has already occurred in Athens.
Hopefully, the Brazilian sports ministry has a long term plan for using these new and state-of-the-art sports venues.

Possible Solutions

The Rousseff administration would be well-advised to revise their decision on the transportation price increases, as it seems clear that such an unpopular move will only promote more protests in the near future. Meanwhile, it is arguably too late to cancel major renovation or construction projects for the upcoming sports events, and doing so would just bring further criticism of governmental incompetency.
The best option the president and her cabinet has is to explain to the population that the sports-related contracts were conducted in a transparent and corruption-free way (the Silva scandal notwithstanding).
In addition, a publicly available master plan for the future uses of the new venues would also help to show that the Brazilian government has not placed short-term business contracts over long-term vision for national economic growth.
This may not be enough to appease the protesters and their (numerous) demands and concerns, but it’s a start.

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