Cloud that doesn’t pass for Rousseff

brasilobserver - Sep 18 2015
Brasília- DF 20-08-2015 Foto Lula Marques/Agência PT Presidenta Dilma durante Cerimônia oficial de chegada da Chanceler da República Federal da Alemanha, Angela Merkel Palácio do Planalto

(Leia em Português)


When Brazil glimpsed an escape of the turmoil, problems with China’s economy and the troubled domestic political environment put the country behind more obstacles


By Wagner de Alcântara Aragão

The cloudiness on the Brazilian economic scenario looks like it will not dissipate anytime soon. The results of the Gross Domestic Product (GDP) in the first half of this year and projections made by the federal government in its budget bill for 2016 indicate uncomfortable indicators for the near future.

The international situation does not help. The slowdown in China and turbulence recently faced by this market tend to make the horizon even cloudier for Brazil.

Analysts polled by Brasil Observer coincide in affirming – even from different points of view – that the Brazilian economy will continue to experience hard times for a long period.

For Geography PHd Zeno Crocetti, professor at the Federal University of Latin American Integration (Unila), the domestic economic environment is also negatively affected by increased pressure in the political field and alarmism – also motivated by political reasons, says the teacher – created by media outlets. Crocetti points out that the major media conglomerates experienced a revenue decline more drastic than the fall of GDP, which would be contaminating the economic news produced by these vehicles.

“The revenue from ads fell 8.5% in the first half of 2015 compared to the same period of 2014, according to Ibope Media. The crisis in traditional media is much higher than the crisis in the Brazilian economy as a whole. The continuity of the alarmist and unbalanced news – as if it were a radicalized opposition party – turns out, in practice, an advertising campaign to sell more and more crisis. Result: frighten consumers, investors and advertisers,” he explains.



According to the Brazilian Institute of Geography and Statistics (IBGE), the GDP recorded in the first half of this year was a decrease of 2.1% compared to the same period of 2014. In 12 months (July 2014 to June 2015) the reduction was 1.2%. The market forecasts have pointed to a GDP at the end of 2015 from 1.5% to 2% lower than in 2014. The most recent estimate by the International Monetary Fund (IMF) points to a GDP 1.5% lower in 2015, in comparison with the past year.

Betting on significant improvement for next year seems risky. The IMF estimates for 2016 Brazilian GDP growth of 0.7%. This is a more optimistic projection that the federal government itself – in the budget bill that the Presidential Palace sent on 31 August to Congress, the forecast is for growth of only 0.2% in the year next. This year, the federal government estimates a decrease of 1.8%.



GDP is not the only way of measuring the economic development of a country. Economics PHd Nildo Ouriques, professor at the Federal University of Santa Catarina (UFSC), cites poor results in other indicators to demonstrate that the Brazilian economy tends to face longer difficult times. “Unemployment will be double-digit at the end of the year,” he says. “And inflation does not reduce.” The basic interest rate will be “the largest on the world.”

The federal government plans inflation of 9.25% this year – almost three percentage points above the target ceiling fixed by the Central Bank (6.5%). For 2016, the government works with an inflation rate within this limit – the budget bill cites 5.4%. The budget, by the way, has generated quite repercussions for taking the prospect of a primary deficit (negative balance between revenues and government expenditures) of 30.5 billion reais for the next year.



As much as external factors inevitably impact national economies, both Crocetti and Ouriques consider that the effects of Chinese turbulence should be less strong than alarmed in the country. It was also noted by the economic advisor to the Federation of Industries of the State of São Paulo (FIESP), André Rebelo. “In view of the internal problems we face, the impact of China’s slowdown will be minimal,” says the analyst.

Zeno Crocetti warns, however, to the risk of lower Chinese demand on Brazilian products – iron ore and soybeans are the main items of exports from Brazil to China. According to the Ministry of Development, Industry and Foreign Trade, from January to July this year the Brazil-China exports fell 15% (revenue), compared to the same period last year, totalling 112 billion dollars. Since 2012 these values ​​fall each year (from 2013 to 2014, down 7%).

For Ouriques, overestimating China’s impact comes to be convenient for the government, because it legitimizes the fiscal policy of austerity. The professor includes the right opposition as an accomplice of such a policy. “The government, with the support of the PSDB and PT, is taking workers’ rights, privatizing companies [there is the question, for example, sales of parts of the BR Distribuidora], allowing a huge flow of wealth out of the country in multiple ways and heavily subsidizing multinationals while tightening the workers and the poor,” he criticizes.



The “Agenda Brazil”, a set of proposals submitted under the leadership of Senate President Renan Calheiros, as a counterpart to the federal government in exchange for the support of Congress to approve the government’s measures, is far from being considered the best option to get out of the economic crisis.

The package includes neoliberal measures – such as administrative reform that reduces the state, deepening of fiscal adjustment and up to the billing service for the Unified Health System (SUS) based on the user’s income bracket. The “Agenda” has been rejected by trade unions, social movements and leftist leaders while the opposition seems to wait comfortably from the courts for the necessary proof to bid for the impeachment of President Dilma Rousseff.


Three points of view on the crisis

What follows are the opinions of André Rebelo, from FIESP, and professors Nildo Ouriques and Zeno Crocetti about the Brazilian economy


BRASIL OBSERVER | What is China’s effect on Brazil?

ANDRÉ REBELO | China is the main destination of our primary products and the prices of these goods is determined by Chinese demand. The slowdown in China has brought down the price of ore and soybeans and this is impacting on the exchange rates, with the devaluation of the real. Given the current scenario, the impact will be small compared to the internal problems we face.

NILDO OURIQUES | A slowdown in China could remain or not, but will not affect the “emerging” countries for the simple reason that these countries, keeping their policies in favour of the rich, will never leave the status of being underdeveloped countries. The property is more concentrated; high finance manages to gain more power and wealth with the public debt and the debt of households and businesses.

ZENO CROCETTI | Very small due to the size of Brazilian exports. And because it is a predictable crisis and forced by market speculation. Since the beginning of the year, shares of companies listed on the Shanghai Stock Exchange rose by over 140%, despite the economic slowdown; therefore, a clear speculative movement of professional vultures to expropriate the savings of unwary investors and Chinese amateurs.


BRAZIL OBSERVER | What measures should Brazil adopt?

ANDRÉ REBELO | To grow once again, but in a sustainable and internationally competitive way, Brazil needs to implement structural reforms – tax, labour and Social Security – vital to stimulate productive investment and lead the country to a new level of development.

NILDO OURIQUES | So far no action has been taken to mitigate the destructive effects on workers. The Safra plan allocated 189 billion reais to export agriculture, which reinforces the inequalities, and only 30 billion reais for family agriculture, which accounts for over 70% of the food that Brazilians consume. Do you want the greatest example for whom the government gives priority?

ZENO CROCETTI | The higher interest rate this year managed to reduce inflation expectations in the future and this is very important both for consumers returning to buying and for entrepreneurs deciding to invest. The higher dollar helped improve the trade balance, but any scenario is just a probability. Much remains to be done, fiscal adjustment measures.


BRAZIL OBSERVER | How to reverse de-industrialization?

ANDRÉ REBELO | Brazilian industry should be internationally competitive, but the Brazilian economy then reduces this competitiveness by imposing costs that the companies located in other countries do not have. Thinking about a short-term agenda, I would highlight the full exemption of exports, exemption of investment, reduced energy costs, reduced interest rate and an appropriate exchange rate policy to the development of industry. Within a long-term agenda would be tax reform, containment of public spending, zero nominal deficit, rationalization of the government budget, domestic interest rates compatible with international institutional framework for investment in infrastructure, reform of the monetary system, changes in reserve requirements, pension and labour reform.

NILDO OURIQUES | The current government is committed to the route of deindustrialization and denationalization. Therefore, the current government will not change the line of action. Business, on the other hand, are not pushing towards the protection of domestic industry either, a fact that reveals the DNA of Brazilian industrial bourgeoisie is not in the defence of their own interests. It’s amazing to watch as they are more interested in devaluation the real for the growth of mining and agriculture export, even at the cost of greater industrial dependency. Obviously there are many measures that are taken in many parts of the world (England, USA, China, South Korea, etc.) that could be adopted here. There are many other suggested by the Brazilians and even the left party’s economists. But we should have no doubts about it: Joaquim Levy, the finance minister, was a Bradesco employee and studied in Chicago. There is no chance for another direction.

ZENO CROCETTI | For many of the researchers, the main cause of the destruction of Brazilian industry is the global crisis, reducing exports and catalyst of foreign competition for domestic market. Another issue is the cumulative effects of the loss of the third industrial revolution and the debt crisis, between the 1970s and the 1980s; trade liberalization with overvalued exchange rate and high interest rates in the 1990s; and maintenance of high interest rates and the real value from 2003. To leverage the idle capacity in the industry and put it to his feet, only with the State playing a crucial role in making the industry to recover its strength. But the dismantling of the State promoted over the last 30 years by neoliberal measures took part of the capacity.

Brasil Observer is a Brazilian newspaper published in London. Read issue 31.