Brazil's Lost Decade: The Invisible Costs of an Epic Recession
By David Biller and Gabriel Shinohara
Bloomberg Politics, August 21, 2017, 7:01 AM GMT-3
The rise in street beggars and decaying infrastructure are perhaps the most obvious symptoms of Brazil’s economic and political meltdown. But it’s the less visible fallout -- like the cancellation of school lunches and the cuts to life-saving medical research -- that may leave its most devastating legacy.
Years of belt-tightening following the end of the commodities boom have squeezed government funding of education, health, research and policing. Fewer cops on the beat have led to more crime and more deforestation of the Amazon -- longstanding Brazilian problems that are back with a vengeance.
The fallout from austerity is exacerbating near-universal contempt for the country’s political elite after three years of scandal and, in a phenomenon that mirrors a growing trend across the world, risks propelling outsiders into power in next year’s national elections.
"Recovering lost development will consume at least the entire term of the next president, in the best of cases," said Carlos Langoni, a former central bank governor who’s director of the Center for World Economy at the Getulio Vargas Foundation in Rio de Janeiro. "Our big frustration as economists and Brazilians is that the country could already be on another level of development and social well-being, and we’re losing time.”
Once the emerging-market darling of Wall Street, Brazil’s economy went from growth of 7.5 percent in 2010 to shrink by virtually the same amount in the last two years. Unemployment has risen to a near-record high, GDP per capita fell to 2009 levels and the budget deficit is hovering around 10 percent of GDP. There is no sign the Latin American giant will recover its investment-grade status any time soon.
Recent setbacks have dispelled much of the hope that Brazilians nurtured for their country throughout the 2000s, when soaring prices for soybeans, coffee and sugar tripled exports and swelled government coffers. Former President Luiz Inacio Lula da Silva had been showered with international praise for beginning to remove some of the symbols of Brazil’s backwardness, from malnutrition to the destruction of vast swathes of the Amazon.
Millions of Brazilians rose out of poverty on Lula’s watch and began to enjoy the fruits of a middle class lifestyle. Today, the ladder up Brazil’s notoriously rigid socio-economic structure is inaccessible to most people.
Studying on an empty stomach, experts agree, will undermine scholastic aptitude and potentially diminish performance in the labor market. In the north-eastern state of Bahia, local officials blame the lack of school lunches on budget cuts by the federal government.
"This year the situation worsened," said Rui Oliveira, head of the Bahian chapter of the association of teachers on leave. "In the hinterlands of the state, where the situation is more intense, it’s the only source of food for the children."
Saullo Rosa, the 26-year-old son of functionally illiterate parents in a crime-ridden city near Rio de Janeiro, was going to be the first member of his family to graduate from college - until the state ran out of money to pay teachers and the school suspended operations.
In the nation’s capital, David Moyses was hoping to go to UCLA to complete his engineering studies with the help of a federal government scholarship. After doing the necessary exams, the program was scrapped, along with his dreams.
"I see others who went abroad getting jobs in the best companies, while I get the leftovers," said Moyses, a trainee at the state-owned real estate developer Terracap, where he earns less than $300 per month.
For Brazilians aged 14 to 24, the job market is particularly bleak with more than one in four unemployed, according to the government-run think tank Ipea.
Read more: How Brazil lost its way -- a QuickTake explainer:
To be sure, without budget cuts, Brazil’s public accounts would be in an even worse state and would delay restoration of investment-grade status. But austerity is beginning to hit some of the most promising Brazilian industries, such as the development of vaccines.
At the Fiocruz laboratory, management has told researchers that there isn’t enough federal money to keep up the 20-member team studying hepatitis, a disease that affects up to 2 million people in Brazil, according to the Brazilian Society of Infectious Diseases.
"A two- or three-month delay in payment to the teams and for the research can set back the study by a year," said Manoel Barral Netto, vice-president of education at Fiocruz.
Elsewhere, there have been similar cuts. The federal budget for scientific research is a quarter of what it was in 2010, and part of what remains has been frozen, according to Ildeu de Castro Moreira, head of the Brazilian Society for the Progress of Science. "Other countries continue to invest in times of crisis,” he said. “Here we’re retreating.”
The national council promoting science and technology, or CNPq, is struggling to adapt to the new budget reality. José Ricardo de Santana, head of institutional cooperation, said the council is no longer “launching large, new programs.”
World Wildlife Foundation partners have witnessed increased invasions by small-scale farmers and speculators of protected areas in the south of Amazonas state. Deforestation in the Amazon forest surged 29 percent last year, according to official estimates. “One of the main reasons is the reduction of the Environment Ministry’s spending, especially the budget directed to supervision," said Mauricio Voivodic, the executive director at WWF Brazil.
The country’s staggering reversal of fortune is certain to dominate the 2018 vote to replace President Michel Temer. While few politicians will be willing to criticize Bolsa Familia, the popular cash-transfer program created by Lula, many will be quick to blame him and his successor and disciple Dilma Rousseff of driving public spending to unsustainable levels.
"Brazil needs to change, Brazil needs to modernize, Brazil needs to understand that if the private sector is given the right conditions, it will grow and create jobs," said Rodrigo Maia, president of the lower house. "One shouldn’t think Bolsa Familia will resolve Brazil’s problems.”
— With assistance by Vanessa Dezem, Gabriel Shinohara, Luisa Marini, and Rachel Gamarski