• Other Websites
Other Websites
Atrás

Home | News | Brazil: Searching for a way forward?

Brazil: Searching for a way forward?

There's no doubt that Brazil has been a complete disappointment in recent years. In economic terms, year after year growth has been lower than originally expected and in 2015 the country is falling into its deepest recession for 25 years. Not long ago there was talk of the Brazilian miracle and how its model had managed to lift 30 million people out of poverty and become part of the new middle class driving consumption, the real engine of growth. Now, however, there is debate on how sustainable it is to keep these people out of poverty and stop them falling back into it while unemployment is just beginning to raise its head.

Brazil previously made headlines in the world media with the eccentricities of Eike Batista, the visible face of Brazilian neo-corporatism, where a few companies, selected by the state, were called upon to become world champions with the gracious backing of BNDES and its generous loans at subsidized rates.

In the political sphere, Brazil has gone from having a president like Lula, acclaimed by everyone and lauded as being one of the creators of the new model of Brazilian growth, to being involved in the biggest corruption scandal in the history of the country, the so-called Lava Jato or car wash case, a scheme to defraud the biggest domestic company: PetrobrasBrazil's great failings are being exposed. The Lava Jato case has already resulted in more than a hundred people being processed by law authorities, including senior executives from companies such as Petrobras itself and many others that were involved in the fraudulent scheme. In financial terms, Petrobras has already lost more than 75% in dollars in the last five years, evidence that, to some degree, the market has already priced in the irregularities and government decisions to use the company for purposes other than to maximize the return for shareholders. Eike Batista and his empire, which was once worth more than USD 50 billion at its peak, is now in bankruptcy. In turn, many prices have been adjusted, like the local currency, which is now worth less than half it was three years ago..

Leasing prices per square meter for prime office space in Sao Paulo, which not long ago cost more than the best locations in New York, London or Hong Kong, are now the same as in Santiago.

However, while a short time ago the only engine of domestic growth was public spending and consumption, these two elements are now a central part of the adjustment that Brazil is experiencing. On the one hand, the new finance minister, Joaquim Levy, is doing a great job of putting public finances in order with budget cuts and the elimination of tax breaks, unprecedented in the country's recent history. Now it's no longer possible to create another "world champion", as BNDES doesn't loan the amounts it did before, nor at the same interest rates. An ambitious plan was also announced where private sector actors will be the key players and not the state.

In some way, Brazil could be experiencing the first signs of the creation of new foundations for future growth. Growth that is much more solid, that depends less on state and private debt, where productivity and efficiency are paramount, where politics and the corporate world are no longer so perversely related, and where the country opens up to the world and stops focusing on trade blocs like Mercosur.

There is hope that in 2016 we will begin to see the first indications that Brazil is returning to growth, an improved version rather than the lackluster one seen until now. The Rio Olympic Games in 2016 could be the ideal stage to show off, not just this marvelous city, but a revitalized country that is leaving behind all the pretentions of the last decade.

Larrainvial
Larrainvial

LarrainVial S.A. LarrainVial Chile. Isidora Goyenechea 2800, 15th Floor, Las Condes, Santiago, Chile.
Tel.: +562 2339 8500Teléfono: +562 2339 8500

All Rights Reserved ©Copyright 2020

subir