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Brazilians set for a nasty shock as economic crisis deepens
Anna Rangel . Dec 16, 2020
Family in poor housing settlement in Planaltina, a city in the outskirts of Brasília. Photo: Marcos Casiano/Shutterstock
The Brazilian population has yet to realize the severity of the crisis set to hit the country in the next two years. The government’s emergency aid program helped to cushion the initial blow of the recession caused by the coronavirus pandemic, but the true colors of Brazil’s fiscal problem have yet to become clear to the average citizen. This is the view of political scientist Daniela Campello, a researcher and professor at think-tank Fundação Getúlio Vargas in Rio de Janeiro.
“The government’s [emergency aid program] forged a security blanket that sustained a lot until now”, argues Ms. Campello.
But in a country with limited fiscal space in the medium term, there is little room for another spending spree to avoid a <a href="https://brazilian.report/society/2019/05/03/brazilian-economy-crises-history/">deep recession</a> in 2021 and 2022 — when President Jair Bolsonaro will run for re-election. </p>
<p>Since being implemented in April, the coronavirus stipend was distributed to more than 60 million people at a total cost of around BRL 322 billion (USD 64 billion). Meanwhile, Brazil’s 2020 deficit will reach BRL 779.8 billion, according to estimates from the Independent Fiscal Institute, linked to the Brazilian Senate.</p>
<p>The aid program changed perspectives and allowed a safety net for millions of Brazilians who lost jobs or were furloughed in 2020. A poll conducted in October by the National Industry Confederation showed that fewer people are afraid of losing their jobs, compared to 2019. Furthermore, the study respondents were slightly more satisfied with their lives than they were before the Covid-10 pandemic.</p>
<h2>President Bolsonaro rides the wave, for now</h2>
<p>The change (or lack of it) in public opinion can also be seen upon analysis of President Bolsonaro’s approval ratings. Despite his disastrous handling of the pandemic in Brazil — denying the severity of the disease despite almost 7 million cases and near 200,000 deaths — Mr. Bolsonaro’s popularity has been unaffected. Indeed, his approval ratings are now higher than they were when he took office on January 1, 2019.</p>
<p>However, it is worth noticing that the 37 percent of the population who believe Mr. Bolsonaro is doing a “good” or “great” job is the lowest level of approval for a first-term president since Fernando Collor de Mello in the early 1990s.</p>
<p>“In general, voters for consequences in their own lives and it is tough to work out what is attributable to Mr. Bolsonaro and what is due to other reasons,” says Ms. Campello. “The government has been focusing on countering the economic effects of the pandemic and this is why people have not realized [the scale of the] problem yet.”</p>
<p>Brazil’s <a href="https://valorinveste.globo.com/mercados/brasil-e-politica/noticia/2020/12/15/governo-propoe-meta-de-deficit-primario-de-r-247-bilhoes-para-2021.ghtml">debt to GDP ratio</a> is likely to cross the 100-percent threshold by 2024, according to the most recent estimates by the Independent Financial Institute, an advisory institution attached to the Senate. The same report indicates a high likelihood of the government breaching the constitutional public spending ceiling instated in 2017.</p>
<p>In Ms. Campello’s view, if President Bolsonaro is able to elect an ally as House Speaker in February’s crucial congressional leadership vote, that may pave the way for a “populist arrangement” until the 2022 election. “My impression is that Mr. Bolsonaro will spend some time balancing between adhering to the constitutional spending ceiling and giving into demands,” she says. “The most likely scenario is he will give in.”</p>
<h2>Poor prospects for recovery as crisis looms</h2>
<p>Ms. Campello is a co-author of the so-called Good Economic Times index, which measures commodity prices and international interest rates to come up with a yardstick for economic prosperity. Both of the factors used by the index are crucial to growth in export-dependent emerging nations such as Brazil. According to her findings, perspectives for recovery are slim.</p>
<p>“The index shows we have been going sideways for a while, at a lower level compared to the past few decades,” she explains. The region’s golden era occurred in the 2000s, due to a sharp increase in commodity prices and booming demand from China.</p>
<p>Another such commodity spike is unlikely and global interest rates have fallen, suggesting that Brazil has wasted the last window for foreign capital inflows, in the mid-2010s. “The moment is gone and Brazil did not seize the period when investments were still coming to emerging countries,” says the researcher.</p>
<p>After a period of capital bonanza in emerging markets, the global scenario has flipped, which could lead to political instability. At this point, historic problems in Latin America — including inequality, endemic corruption, and insufficient public services — come to the fore once again. “People expect life will continue to improve, but it hasn’t,“ adds Ms. Campello.
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