Brazil: A Reflection of Latin America

By Ignacio Garcia Conway

During the late 20th century, Brazil’s story was not very different from that of the rest of Latin America. As the 1980s began most South and Central American countries, along other developing nations of the world, faced stagnant economies with high levels of inflation. The Mexican default in 1982 augmented monetary pressures throughout the region, leading to the loss of Brazil’s access to foreign financial markets. By 1985 one thing was clear: economic and fiscal reform was necessary.

For close to a decade, the Brazilian government failed to reduce inflationary pressures or accelerate economic growth. It was not until 1994 and the election of President Fernando Henrique Cardoso, who would serve until 2003, that Brazil would start a successful stabilization program. The “Real Plan” managed to decrease levels of inflation and thus create a new consumer class in Brazil that would push for the development of the country. Initially, investors had doubts on the Real Plan’s success, but these were silenced by an increasing GDP and rapid growth.

The government’s actions were not unique to Brazil, but reflected the results of what economist John Williamson termed the Washington Consensus of 1989. It originally consisted of 10 policy areas Williamson observed to be common in the advice given to Latin American governments by Washington-based institutions such as the International Monetary Fund, the World Bank and the U.S. Treasury. The term quickly went on to represent the neoliberal and market-based approaches most governments took to confront the crisis.

Yet the Washington Consensus had social and political undertones as well. The quick economic recovery was at the expense of many, increasing inequality and leaving lower class citizens out of the equation. This led to a leftist backlash in the region, leading to many political victories for worker and socialist party leaders such as Hugo Chavez in 1999 and Evo Morales in 2006. In Brazil, Luiz Inácio Lula da Silva, founder of the Brazilian Worker’s Party, was inaugurated as president in 2003, and throughout his presidency, the country prospered. Many deemed the new political spectrum of Brazil and other South American countries a success, yet by the end of the decade and the beginning of the next, the economy would suffer a contraction.

Crippled with falling demand for exports, a devaluing currency, increasing levels of unemployment and a new administration, Brazil entered the second decade of the 21st century on tough terms. For most of the 2000s, Brazil had an export dependency on China, but as the Chinese economy began to slow down, fewer Brazilian products were demanded and prices plummeted along with a surplus of goods. Investment fell 12% in the second quarter of 2015 as unemployment rose to 8%. By August 2015, the real had devalued 25% against the dollar. The high levels of public and private debt led to a decrease in consumption of more than 1.5% in both sectors, and by the last quarter of the year, GDP had an annual growth rate of -5.9%.

Amongst all the economic turmoil, corruption scandals involving President Dilma Rousseff, da Silva’s handpicked successor, and Petrobras, a state-owned oil and Energy Company, spread through Brazilian society.  An investigation that began inspecting money laundering in car wash establishments led to the discovery of bribery to Petrobras executives from construction companies in order to secure contracts. It was estimated that the funds used in the scheme amounted to almost $2 billion. Since “Operation Car Wash became public, many politicians and company executives have been detained and questioned. Coincidentally, the majority of these events were said to take place when Dilma Rousseff was chairman of Petrobras. While the current president denies any knowledge of the alleged events, Senator Delcídio do Amaral testified on March 15, 2016 that Rousseff was aware of the corruption and tried to impede the investigation along with members of her cabinet.  Unfortunately for Petrobras, these accusations greatly affected the company’s market value, reducing it by 60% in 2014.

By late 2015, Rousseff’s approval rating was a dismal 8%, and Brazilian society was infuriated with its government’s affairs and the general economy. Large protests began to form, calling for action, with some even leaning towards military intervention. The president reaffirmed the people’s right to protest and agreed with them that Petrobras should be cleaned up. Yet, she has not taken any immediate action against the company or the members of her party involved, relying on the already corrupt judicial system. The delicate situation reached a climax when former president Lula da Silva’s administration was also called into question.

On March 4, 2016, da Silva’s house was under federal investigation and the former president was taken in for questioning. Investigators claim that Lula da Silva received benefits, including renovations for his beach homes and campaign funding, in connection to the Petrobras scandal. Furthermore, doubts about the success of his presidency emerged. Lula left office with almost 80% approval after having improved the minimum wage and other popular measures, but in hindsight, his failure to deal with structural inequality is now said to have contributed to the current crisis. Moreover, in an attempt to help Lula da Silva avoid prosecution, Rousseff appointed him as her Chief of Staff. A federal judge later blocked the appointment.

Massive protests are calling for the impeachment of President Rousseff, for having allowed the economic situation to worsen as her party is investigated for corruption.  She has refused to step down on the grounds that she was elected in a democratic process, and Rousseff blames her political opponents for prolonging the economic crisis by creating a negative image of her administration, causing political disorder. However, members of the president’s administration also seem to disapprove of her tactics since some, such as Sports Minister George Hilton, have resigned from their positions in protest. As her administration and government coalition crumble before her, Dilma Rousseff’s impeachment becomes ever more likely, and on April 5, a justice of the Brazilian Supreme Court ordered the country’s legislature to begin impeachment proceedings against Rousseff’s Vice President, further deepening the crisis.

For all of the drama surrounding the scandals in Brazil, their government is not the only leftist administration facing problems in Latin America. On November 22, 2015, Mauricio Macri, a center-right politician, won the presidency of Argentina, marking the end of the 12-year Kirchner leftist government. In Venezuela, approval for Chavism has been in decline since 2007 and is now at an all-time low due to President Nicolas Maduro’s unsuccessful attempts to boost the mess that is the Venezuelan economy. Meanwhile, Evo Morales, Bolivia’s democratic socialist President, enters his last term after losing a referendum that would allow him to extend his presidency to a fourth term. A center-right backlash is beginning to solidify throughout most of South America as many of the region’s economies and governments cripple. Could it be then that, like in the late 20th century, Brazil’s story today is not very different from that of the rest of Latin America?