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Brazzil - Economy - September 2003

Brazil = Recession + Depression

At the moment, Brazil is not a happy country. People are
depressed. Those with jobs are worried about losing them
and the unemployed are desperate for work. This goes for
all sectors and all classes. Shops, restaurants, bars and
car dealers are among those reporting lower sales.

John Fitzpatrick


We learned that Brazil is officially in a recession, with the announcement by IBGE, the government statistics agency, that the economy had contracted by 1.6 percent in the second quarter of this year. The news came as no surprise, but was worse than the fall of less than 1 percent expected by most analysts.

It was just the latest bit of bad news, and this economic recession just adds to the general depression hanging over the country and affecting almost everyone. "Stagflation", an ugly word invented to describe an economy with zero growth and high inflation, linked "stagnation" with "inflation". If we combine "recession" with "depression" we arrive at another ugly word, "repression", which pretty well sums up the state of Brazil at the moment.

Growth for this year is generally expected to come to around 1.5 percent, although some pessimists say it will be lower and may even be negative. The government's attempts to cheer us up have been unconvincing. The Finance Minister, Antônio Palocci, and the national president of the Workers Party, José Genoíno, denied that we were in a recession, which is generally defined as two consecutive quarters of falling growth. Instead, Palocci says the worst is over and pointed to some signs of recovery. However, these signs are limited and few observers believe the government predictions of 3.8 percent growth next year.

The government published its budget proposal for 2004-2007 this week, which includes worthy aims like creating 7.8 million jobs, achieving an annual growth figure of 5 percent, and an annual trade surplus of US$ 210 billion. This program will cost R$ 296.7 billion and most of the resources—R$ 232.8 billion—will come from private companies and state-controlled banks, such as BNDES and the federal savings and loan system, Caixa Econômica Federal.

A government spokesman described the budget proposal as "realistic", something that could be accomplished without increasing taxes. Well, let's just wait and see. The government's tax reform proposals are currently bogged down in Congress, and President Luiz Inácio Lula da Silva's Chief of Staff, José Dirceu, has indicated this reform might not be implemented until next year.

At the moment, Brazil is not a happy country. People are depressed. Those with jobs are worried about losing them and the unemployed are desperate for work. This goes for all sectors and all classes. Almost all my professional contacts have either lost their jobs over the last two years, or are worried about losing what they've got. People are reluctant to spend what money they have on non-essential items. Shops, restaurants, bars and car dealers are among those reporting lower sales.

Unemployment rates, interest rates and taxes are high, salaries are low and, although the government keeps saying that inflation is under control, people's incomes are still being eroded. The "good" news—falling interest rates and a forecast that the benchmark rate will be at 21 percent by the end of the year, plus booming exports and greater-than-expected foreign direct investment—is simply not "good" enough.

President Lula keeps pleading for time, but few people really believe that good times are just round the corner. Brazilians are a patient lot, so Lula, whose personal popularity is still extremely high, still has room to maneuver. However, he is committed to improving the social lot of the masses who gave him their votes, and has to keep offering something. Right now however, he is talking up rather than building up the economy.

To add to Brazil's domestic woes, the country is also being battered by bad news that is adversely affecting its image abroad. Consider this list of recent events, all of which have been given great international coverage:

-The death of Brazilian U.N. diplomat Sérgio Vieira de Mello, in the terrorist attack in Baghdad. Although Vieira de Mello spent most of his life abroad and never represented his country, his death was seen as an attack on the Brazilian characteristics of tolerance, give and take and somehow or other finding a way—um jeito—to overcome problems. A glowing, but rather naïve obituary was published by The Economist. Unfortunately this approach does not always work in hot spots like the Middle East, and the fact that Vieira de Mello was Brazilian was irrelevant in the eyes of his killers who were aiming for him. It also gave Brazil a first-hand taste of what it is like to be (almost) a terrorist target.

-The deaths of 21 technicians and engineers at the Alcântara air base, when a satellite launching device exploded. The tears Lula shed at a memorial service this week could also have been tears of frustration, since the disaster has raised questions about Brazil's ability to continue with its space program. Questions have been raised about the costs and risks involved. The deaths were not only personal tragedies for the families, but robbed Brazil of technical expertise. Does the country have the financial resources and modern technology to go ahead? By coincidence, the explosion happened only a few days before U.S. authorities published their report into the Columbia disaster, which pinned much of the blame on NASA. The initial response of the Brazilian authorities to the Alcântara explosion has been to appoint an internal commission of inquiry. This caused such an outrage that they had to backtrack somewhat. By comparing the openness of the American investigation with what could become a cover up, the news media, for once, actually praised the United States.

-Amnesty International has just published a report claiming that most of the police involved in two mass killing in Rio de Janeiro ten years ago are still free and unpunished. In its report, Amnesty said: "In 1993 Brazil and the international community were appalled by two massacres of unarmed and defenseless civilians, that took place within weeks of each other in Rio de Janeiro city. Eight "street children" and young adults were attacked and killed as they lay sleeping outside a church in central Rio, in what became known as the Candelária massacre on July 23, 1993. Little over a month later, on August 29 of the same year, twenty-one residents of Vigário Geral, a poor community on the city's outskirts, were slaughtered by a group of heavily armed and hooded men. The shock of these brutal and senseless killings was made all the worse when evidence emerged that both massacres had been carried out by members of Rio's military police force, the very individuals paid, trained and equipped by the state to protect society from crime and violence." Although the report was publicized here, there was little public response since none of this comes as a surprise, and none of us think that things will change. Writing a report like this in the safety and security of London can easily fill one with outrage, but this outrage will do little to bring justice to Rio de Janeiro.

Other negative stories which have been highlighted in the international media this week were the discovery of "slave" workers in Bahia state, and a revolting story of the ritual murder, torture and castration of five children in Pará state between 1989 and 1993 by a satanic sect.

To cheer Brazilians up a little, their team did well in the recent Pan American games held in Santo Domingo. These are the Americas' equivalent of the Olympic Games, and the mainly amateur Brazilians performed well against powerful rivals like the U.S. and Cuba.

On the professional sports scene, the national football team is preparing to face Colombia in the qualifying rounds for the next World Cup. It may seem unfair that Brazil, the reigning world champions, should have to qualify while the runners-up, Germany, do not. However, due to rule changes by FIFA, from now on only the host country will have a place assured in the World Cup—and Germany is hosting the next cup in 2006. This scandalous change was agreed to by Brazilian football authorities, for purely mercenary reasons. It means more games during the qualifying tournament, more television coverage, and more money for their coffers.

We should not be surprised by this greed, since finance took over from sport a long time ago, and virtually all of Brazil's top players are now abroad, signed by clubs in various other countries. Of the 22 named for the squad to face Colombia, only five are based in Brazil. In the last five months alone, around 50 players have left Brazilian clubs to play abroad.


John Fitzpatrick is a Scottish journalist who first visited Brazil in 1987 and has lived in São Paulo since 1995. He writes on politics and finance and runs his own company, Celtic Comunicações— www.celt.com.br, which specializes in editorial and translation services for Brazilian and foreign clients. You can reach him at jf@celt.com.br  

© John Fitzpatrick 2003

This article appeared originally in Infobrazil, at www.infobrazil.com




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