Brazil’s mounting challenges: ‘The Giant has Awakened’

Giselle Datz - Assistant Professor of Government and International Affairs at Virgina Tech, USA

For the most part Brazilians bought into the story or chose to ignore its implications. After all, Dilma Rousseff was elected in 2010, as Lula wished. Still, despite an agenda that was motivated by economic continuity, the political malaise in the country became more glaring. In a rare demonstration of institutional strength and courage, Brazil’s Supremo Tribunal Federal (STF), the country’s Supreme Court, sat in judgment on those involved in the mensalão scandal in nationally televised sessions that highlighted the firm hand of Chief Justice Joaquim Barbosa to a Brazilian public that had seldom been so interested in the work of its STF. It was largely because of this that, in the midst of protests in the last weeks of June, opinion polls made Barbosa the favourite to succeed Rousseff in the elections of 2014.  Her approval rate tanked to 30 per cent.

Although the President claimed that ‘life inside people’s homes improved a lot in the last ten years [thanks to Bolsa Família, the country’s conditional cash transfer programme]’, she conceded: ‘outside, not so much’. She also admitted that her government was unable to improve urban mobility, education or health services.

Despite her attempt to transform the ‘energy in the streets to institutional energy’, the fact is that Rousseff and her team mishandled the moment, making proposals that were unconstitutional (such as the idea for the establishment of a Constitutional Assembly), politically misguided (as in the case of a plebiscite on vaguely heralded ‘political reform’ that shifts most of the blame to Congress), or overly hasty (the President insists on implementing institutional changes before the 2014 elections).

The government’s bewilderment in the face of the protests only feeds into the now open cynicism of Brazilians toward the President and Congress and their rejection of political parties. This makes it a crucial moment for the opposition to make its case more persuasively, but also exposes its weakened position to be taken seriously regardless of its message.

Although social demands are understandably broad, Brazil’s economic challenges are quite discernible. The main one is clearly growing inflation (the 4.5 per cent centre of the inflation target has already been bypassed this year). Slower growth is evident in 2013 and is expected to run into 2014. Despite large political and economic investments in ‘South-South’ trade, an ailing Argentina and a slower (in relative terms) Chinese economy raise concerns about the trade balance. Studies, such as those of renowned economist Edmar Bacha, see a trend towards de-industrialisation also as worrisome. In addition, Standard & Poor’s lowered Brazil’s credit-rating outlook to negative in June.

In short, uncertainty about economic policy (leading to frequent fluctuations in the exchange rate), higher interest rates to contain inflation, and a deterioration of the country’s fiscal health are now feeding more negative expectations in both productive and financial sectors of the economy.

Brazil has long been known for its soccer artistry. It has been more recently rewarded internationally for its economic turn from hyperinflationary basket-case to stable and growing economy. In 2014 the country will be facing two important contests: the World Cup and presidential elections. Neither is now as predictable as previously expected before this summer’s events.

Brazil’s decisive victory over Spain in the final game of the Confederations Cup came as a welcome surprise and at least places the official team on better footing for next year’s championship. More importantly, the political surprise is that Rousseff’s reelection in 2014 is now anything but a given. Brazil’s economic record is likely to continue to be challenged by external conditions and domestic pressures. ‘The Giant has Awakened’ indeed. But can it score beyond the Maracanã? Brazilians have made it evident that their passion for goals cannot be used to soothe their appetite for change.

Giselle Datz is Assistant Professor of Government and International Affairs at Virgina Tech, USA. She specializes in the field of global political economy with  research interests in debt restructuring processes, economic policy  reform and development, financial crises, and comparative politics (Latin America).