By Sam Schaffer
Is Brazil about to bust?
Although considered one of the “big four” in terms of global economic development, Brazil, the “B” of the BRIC nations, finished out 2014 with rising inflation rates and mounting pressure on prices. Falling into recession midway through 2014, the Brazilian economic powerhouse has continued its decline with headlines of corruption, severe drought, ravaging social inequality, and foreign policy rifts, delineating a staggering speed bump for the president of South America’s largest economy.
All of this, however, preceded the break-neck election that brought President Dilma Rousseff back into the presidency against opponent Aecio Neves of the Social Democratic Party last October. Rousseff’s narrow victory with only 51.4 perfect of the vote in the second election round shows an unsettling national divide in Brazilian politics. With such a thin margin of victory – the thinnest in Brazilian history – it’s clear that Rousseff’s second term in office is not completely welcomed by her nation.
While conceding in her victory address that she and her center-left Workers’ Party have many obstacles to face, Rousseff defended her robust welfare policies that have confronted drastic social inequality within Brazil. Rousseff continues to pump the bolsa família program, literally the “family grant,” which provides cash handouts for 12.7 million Brazilian families – almost 50 million people – provided that their children are enrolled in school and receive routine vaccinations.
This program, introduced by Rousseff’s predecessor President Luiz Inácio Lula da Silva, is one of the world’s largest welfare cash transfer cooperatives, and has staggering success rates. In the lead up to the October election, Rousseff increased welfare support by ten percent, prompting critics to suggest that this was simply a strategic move to gain electoral favor. Though, with domestic prices rising, perhaps the social welfare increases are the only headlines that Rousseff could have touted.
Rousseff seems inclined to continue her state-led development policies that opponents and analysts claim caused the economic stagnation now plaguing the world’s seventh wealthiest economy. Ideally, the president’s first task would be to reduce the inflation rate that has been cruising at just over six percent since 2011 and lower the national interest rate that has peaked at twelve percent in January. As interest rates increase, consumers tend to spend less and save more, which in turns leads to economic stagnation and rising unemployment rates. However, interest rates are set high to lower inflation, as increased interest rates minimize demand. This presents a worthy crux for the interventionist government as it battles to smooth over the troubled economy.
Brazil also faces trouble from its unfriendly business environment. Once considered a hot bed for foreign investment, Brazil now faces plummeting investment rates as regulatory landmines continue to ensnare would-be foreign investors. The World Bank’s Doing Business index now places Brazil at number 120 of 189 for ease of business; Brazil’s regulatory chaos has clearly wiped clean investment interest that spiked following Brazil’s boom just a few years past.
Even with economic troubles weighing heavily, Rousseff’s most daunting challenge may actually be confronting the Petrobras corruption scandal that has brought to light a history of sleazy payments by the oil giant. Petrobras, Brazil’s state-owned oil corporation and the world’s largest publicly-traded oil corporation, admitted to skimming billions of dollars into political party pocketbooks. This is incriminating evidence, as Rousseff’s Workers’ Party earned millions in kickbacks leading up the recent reelection. Although the president herself has not been named in the controversy, it remains to be seen whether or not she knew of the illegal dealings.
Apart from the domestic economy and political scandal, Rousseff must also keep Brazil’s foreign policy in check, particularly its relationship with the United States. As one of the major players on the world stage, and a fellow western hemispheric power, Brazil’s behavior is of utmost importance to its neighbor to the north. Traditionally, Brazil and the United States have stood as partners in the Americas, working together when necessary to address specific humanitarian and political issues that have arisen. Recently, the United States has endorsed Brazil’s bid to permanently sit on the United Nations Security Council, and Brazil was the first nation to propose assistance to the US in the event of an attack with the Rio Treaty following 9/11.
Despite this largely positive relationship, there are fractures emerging. Rousseff does not seem hard pressed to jumpstart new economic policy with the United States. While the U.S. and Brazil have had a positive trade history, particularly within the last decade, most Brazilian economic activity has largely pertained to regional investment in South America through Mercosur, the South American regional bloc promoting free trade, and other Southern hemispheric engagements. Its trade partnership with the United States often plays second fiddle to its immediate regional partners.
The United States is also concerned with Rousseff’s non-interventionist foreign policies. Minor rifts have developed over Brazil’s support of Palestine as a non-member state in the United Nations and its deepening relationship with Iran, Venezuela, and Russia. Brazil also has received flak for abstaining from the UN Security Council Resolution vote to invade Libya during the revolt against Colonel Muammar Gaddafi. Some countries saw this as Brazil validating the violence and warfare caused by the Libyan leader.
The biggest cause for tension between Brazil and the United States has been Rousseff’s cancellation of her Washington visit following the scandal that brought National Security Agency spying activities to light in her own capital city, Brasília. This espionage, according to Rousseff, damaged the relationship between the two friendly nations and she refused to believe that the covert activity was actually intended to deflect terrorism, as the United States claimed.
This is hope, however, that these two regional superpowers will find common ground. Recall that Latin America has been in the forefront of the news in recent months with the surge of immigrants flooding America’s southern border in search of safe haven. As a result of his executive order allowing over four million immigrants to stay in the United States, President Barack Obama has been pressured to address the humanitarian emergencies in Central America that are driving emigrants out en masse. These humanitarian crises could perhaps be issues that Obama and Rousseff can confront together: a bilateral approach to stemming the violence rampant in Central America. But could this be the ground on which Washington-Brasília relations are repaired? Probably not.
As he announced in early February, President Obama seems better prepared to throw taxpayer dollars into the region, rather than orchestrating a platform for foreign powers to address the issues where the United States and Brazil could take a stand together. However, Vice President Joe Biden did attend the inauguration of President Rousseff in January, so perhaps relations are looking up for these two nations in the coming year.
With domestic problems abound, Brazil has more pressing problems than bitterness with Washington. Economic struggles may come second when considering the extreme drought that has sapped the reservoirs of Rio de Janeiro and São Paulo, leading to large-scale protests, a familiar activity of the embittered citizenry.
With the 2016 Summer Olympics in Rio around the corner, the world will once again be looking to Brazil as Rousseff navigates these daunting challenges. Brazil’s actions will be widely publicized in preparation for the global sporting spectacle, with many questioning whether or not Rousseff has managed to retake the reigns during her second term. With a heavy load of issues to contend with, perhaps it’s Rousseff herself who will bust before her country.