Brazil’s inequality never grew so much, so fast

. Aug 17, 2019
Brazil's inequality never grew so much, so fast Reflection of Brazilian slum in the windows of a business building in Rio. Photo: Shutterstock

This newsletter is for PREMIUM and STANDARD subscribers only. Become one now!

Hello! You are reading The Brazilian Report‘s Weekly Report. In this issue: How Brazil’s inequality has grown in recent years. Latin American currencies losing ground against the U.S. Dollar. How Brazilian markets performed. And the most important facts of the week. Enjoy your read! (This newsletter is for platinum and gold subscribers only. Become one now!)

The week in review

Amazon. Norway has decided

to freeze BRL 133m from funds it invests in financing projects to curb deforestation in the rainforest. The Nordic country follows Germany, which also stopped sending money to the Amazon Fund—created in 2008. Together, the two countries account for 90% of the fund&#8217;s resources. In response, President Jair Bolsonaro chose sarcasm: &#8220;Norway, you mean [the country] that kills whales and drills oil in the North Pole?&#8221;</p> <p><strong>Shutdown?</strong> Upon taking office, Economy Minister Paulo Guedes promised to end Brazil&#8217;s public deficit within one year. Eight months later, reality is quite different. The federal government is undergoing an unprecedented process of budget cuts—and the risk of a partial shutdown is looming. Research scholarships have been slashed, and even passport issuance could be affected within weeks. To make matters worse, indicators show that Brazil is dangerously close to entering a technical recession, which occurs when a country sees two quarters with negative GDP growth.</p> <p><strong>Anti-Car Wash.</strong> Congress approved a bill to curb excesses by prosecutors and investigators. The move, however, is considered to be aimed at clipping the wings of Operation Car Wash, as it outlawed many of the tactics used by the probe (such as extensive preventive arrests or compulsory processing without prior subpoenas). Justice Minister Sergio Moro asked the president to veto at least eight articles of the bill—but that could trigger a violent reaction from Congress.</p> <p><strong>Gas market.</strong> Only two groups presented bids to purchase Liquigás, a Petrobras subsidiary for bottled gas distribution. The company was highly coveted, but players such as Dutch firm SHV Energy (which already controls 19% of the Brazilian gas market) were reportedly scared off by the government&#8217;s willingness to change the outlook of the gas market. With doubts remaining, most players chose not to enter what could be a BRL 3bn deal. Only Abu Dhabi fund Mubadala and a consortium involving Itausa and Copagaz are taking part.</p> <p><strong>Cybersecurity. </strong>The president&#8217;s security office will launch a national strategy for cybersecurity, with guidelines for both public and private entities. The move comes as companies ask for guidance on how to adapt to the new Data Protection Law, which comes into force next year. Data breaches have become a sad recurrence in Brazil, with over 1,000 Brazilian authorities reportedly being hacked in recent months.</p> <p><strong>Revolt?</strong> The government&#8217;s attempts to politically interfere in several areas of the administration could spark reactions from public servants. In no other area is dissatisfaction worse than in the Federal Police. Marshals sent a message to the government that they could &#8220;go rogue&#8221; if President Bolsonaro insists on naming a friend of his sons as the new head of the Federal Police in Rio de Janeiro.</p> <hr class="wp-block-separator"/> <h2>A bad week for Latin American currencies</h2> <p>Last Sunday, Argentina&#8217;s primary elections placed the Kirchnerist ticket (with Alberto Fernández and his vice, Cristina Kirchner) as clear-cut favorites to win the October election. Markets reacted poorly, with the Argentine Peso closing the week down 18%. The results also triggered threats and attacks from Brazil. Economy Minister Paulo Guedes said that if Mr. Fernández closes his country&#8217;s economy, Brazil could pull out from Mercosur—while President Bolsonaro called the Kirchnerists &#8220;leftist criminals.&#8221;</p> <p>The region&#8217;s markets were also affected by <a href="">growing fears of a global recession</a>, after negative numbers from Japan, Germany, Italy, and the UK—a slowdown in China&#8217;s growth rates.</p> <div class="flourish-embed" data-src="visualisation/601812"></div><script src=""></script> <hr class="wp-block-separator"/> <h2>Markets</h2> <p>Oi Telecom (OIBR3/<a href="">OIBR4</a>) was the talk of the town this week. Q2 results showed that high spending and losses increased by 24%—which erased about BRL 2 billion from the company’s balance. Brazil&#8217;s telecom regulator Anatel, however, denied reports of possible intervention, saying “a definitive market solution is a preferred scenario for a positive evolution of the group’s situation.”&nbsp;</p> <p>Amid the storm, OIBR3 and OIBR4 closed the week down 28.3% and 23.6%, respectively. For analysts at Guide Investimentos, with assets selling expected only for 2020 or 2021, a new capital injection by shareholders or bond issuing became the main option to avoid an intervention. “The company’s turnaround seems more and more distant and we don’t see a significant improvement to believe in this case,” they wrote.</p> <p style="text-align:center"><em><strong>Natália Scalzaretto, TBR markets reporter</strong></em></p> <hr class="wp-block-separator"/> <h2>Brazil&#8217;s inequality never grew so much, so fast</h2> <p>Between 2001 and 2014, Brazil experienced its biggest reduction of inequality levels. This was largely made possible by reforms that created a stable currency, opened up (at least a little) Brazil&#8217;s economy to the rest of the world, and laid the ground for investments. And let&#8217;s not forget the unprecedented boom of commodities of the 2000s. All of that conspired to Brazil having its lowest inequality index (Gini) ever measured.</p> <p>But between April 2014 and December 2016, Brazil had 11 quarters of negative GDP growth—the worst recession in the country&#8217;s history. And the country struggles to regain growth, with all signs pointing to a technical recession this year. In this period, Brazil has seen its longest cycle of inequality increases, says a study by think tank Fundação Getulio Vargas. The main factor is the steep rise of unemployment—currently affecting 12% of the workforce.&nbsp;</p> <div class="flourish-embed" data-src="visualisation/600953"></div><script src=""></script> <p>When the job market gets tough, companies start to segregate more job applicants according to their skills. And in Brazil, education is also a class issue. Poorer populations have less access to high-quality education services, generally speak less foreign languages,and are usually relegated to more basic positions.</p> <p>Not even in 1989—when Brazil&#8217;s Gini index reached its historical peak—did Brazil see so many consecutive quarters of income concentration.</p> <h4>Who lost more?</h4> <p>Nearly all Brazilians lost revenue since 2014, with one exception: the country&#8217;s super-rich. The study shows just how different the crisis impacted different social groups. Revenue losses between Q4 2014 and Q2 2019 were harder on people between 20 and 24 years old (-18%), illiterate people (-15%), residents of the North (-13%) and Northeast (-7.5%) and also on black people (-8%).</p> <div class="flourish-embed" data-src="visualisation/601048"></div><script src=""></script> <p>One of the reasons young people were the worst affected by the crisis is the fact that many are unable to enter the job market in the first place.&nbsp;</p> <p>The only minority group that didn&#8217;t lose money were women (+2.2%, against men&#8217;s -7%). But when we break down this group, we see that racial and social differences persist. Black women earn, on average, 76% of what their white counterparts make—and only 55% of white men&#8217;s salaries.</p> <h4>Poverty bump a side effect of growing inequality</h4> <p>Besides becoming more unequal, Brazil is also getting poorer. According to the study, Brazil&#8217;s poor went from 8.3 to 11.1% of the total population between 2015 and 2017—that is, 23.3m people living with less than BRL 233, or USD 58, per month (which is almost as much as the entire population of Australia). That means that, in a matter of only two years, 6.2m fell below the poverty line. According to Fundação Getulio Vargas, that is due to the lack of expansion in Brazil&#8217;s welfare and cash transfer programs (such as Bolsa Família).&nbsp;

Our content is protected by copyright. Want to republish The Brazilian Report? Email us at