All too often, a country’s economic prospects are determined by the morals of a trusted leader and his or her top officials. Brazil knows this fact to be true – from the mid-1980s to the mid-1990s, the country saw crippling hyperinflation, set in motion by a president who was impeached for corruption.1 But the country’s future looked auspicious in the first decade of the twenty-first century. From 2002-2008, Brazil’s economy expanded at an average of 4% each year, contributing to its current status as the largest economy in South America and 8th largest economy in the world.2 During that time, President Luiz Inácio Lula da Silva declared that the country had found a “winning lottery ticket” after it discovered new oil resources in the Atlantic Ocean.3 Yet because of myopic decisions and a corrupt bureaucracy (in addition to a few external factors), Brazil’s growth has reversed, and the economy has begun to contract.4 Current President Dilma Rousseff, who began her second term less than a year ago, has not only enacted failing fiscal policies to satisfy the agenda of her leftist Worker’s Party, but also implicated herself and her administration in a $3 billion scandal with the Petrobras oil company. Petrobras is Brazil’s largest investor and contributes to 10% of Brazil’s gross domestic product (GDP).5 6 Consequently, the domestic market has suffered, and it will not be long before these problems affect the the international market as well, as once-loyal investors begin to pull out and buyers stay away from Petrobras. If Brazil’s leaders hope to jumpstart its economy again, they must work together to adapt the budget, purify the polluted bureaucracy, and handle public relations properly.7 The bulk of Brazil’s economic issues stem from President Rousseff’s major policy blunders. Rousseff took office in 2010 when the economic growth rate hit a staggering 7.6% but was plateauing. In the hopes of preventing a serious slowdown, Rousseff coerced the central bank to lower interests rates to encourage spending. Her plan worked, but only temporarily – now, exasperated creditors are fighting to pay back shortsighted loans they took out when rates were dramatically reduced. In the hopes of further encouraging economic growth, Rousseff instituted price controls for oil and electricity companies while lowering taxes for specific domestic industries; those tactics, however, only resulted in
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disaster for public energy corporations.8 Running on a leftist platform in both 2010 and 2014, Rousseff pursued policies which unnecessarily expanded her administration’s control in the private sector. Though government intervention in an economy can often improve it, her programs actually inhibited growth. By increasing the size of the national development bank –which was bigger than the World Bank even before the expansion – Rousseff escalated the amount of risky loans doled out to giant companies. Not only were these investments made at rates even lower than those at private banks: they were paid for by taxpayer dollars.9 These ideological oversights certainly added to the current financial emergency, but it was the lack of morals and transparency in the Rousseff administration which sent the nation into hysteria. In 2014, political insiders claimed that Rousseff and the Worker’s Party took funds from government-controlled banks to fill holes in the inadequate budget and make the party appear dominant as the next election season began, even though they understood that the plan would disrupt public finance. The administration has since denounced these claims, but the public does not seem to be giving Rousseff much credibility after her alleged decade-long involvement in the Petrobras oil controversy.10 Starting in 2004 under the codename “Operation Carwash,” the now-infamous Petrobras scandal functioned like a criminal kickback scheme. A cartel comprised of multiple corporations and high-ranking Petrobras officials would overcharge Petrobras for basic services, such as construction, and decide which of its member corporations would receive the extra money. The Petrobras executives involved in the scam were given large bribes, which they often passed on to important government figures for political clout. Since the government owns 51% of Petrobras (even though it is publicly traded), most of the bribes came from taxpayer money. Naturally, citizens were outraged when news of the scandal broke in early 2015.11 Brazilian police have made over 120 indictments in the past year, and citizens are now calling for the President’s resignation after evidence, albeit equivocal, has surfaced that points to her involvement. Of the $3 billion the cartel pocketed, $200 million went directly to the Worker’s Party and was used to back political
September 2016
The Podium | Research Papres
Subtitle-Analysis of and Recommendations for Brazil’s Economic Strife Author-Brendan Pulsifer ‘16 Section-Research Papers
9
The Fall from Grace
