Brazil’s Uncertain Future

With a presidential election run-off to take place in just a couple weeks, Brazil is at a crossroads. Over the course of the first decade of the 21st century, Brazil had its cake and ate it too, with both record levels of economic growth and large decreases in inequality. Annual growth averaged 3.7 percent and the country’s GINI index dropped an impressive 9 percent, from 60.1 in 2011 to 54.7 in 2009. Despite the ups and downs that accompany any multi-year period, the commodity boom had brought sustained and deeply-needed economic and social progress.

Few would argue that the last four years have been enjoyed similarly. Annual GDP growth averaged just 2.1 percent from 2011 to 2013, and both Itaú and the IMF predict that the 2014 figure will register at just 0.3 percent after two quarters of recession in the first half of this year. Trade and investment are also both down. Pessimism about the domestic economy may only be worse in Southern Europe.

There are several reasons for the change. Growth in Chinese demand for commodities from Brazil and other Latin American countries has dropped as China’s growth has slowed. Exports to the United States and the European Union have also slowed during the recent economic crisis, following years of growth.

Perhaps the largest factor, however, has been the government’s own policies. Brazil’s average tariff rate is 7.8 percent, higher than the levels of its BRIC counterparts, as well as most other developed countries. In addition, the public education system is by all accounts horrible. At the same time, Brazilian investment in infrastructure has been fraught with underfunding and inefficiency—not to mention the use of billions of dollars on stadiums for the 2014 World Cup and 2016 Olympics. The result is, not surprisingly, a lack of sustainable and cost-effective infrastructure. Brazil may be the second largest producer of soy in the world after the United States, but a significant portion of the country’s main artery for soy transportation, Highway 163, is still a dirt road. Worse still, there is no train that connects the country’s two most populous—and relatively proximate—cities, Rio de Janeiro and São Paulo. A high-speed rail was supposed to be ready for the 2014 World Cup, but construction still has yet to start. Take all of this together, and it’s easy to see how Brazilian economic and social policies have gone astray over the last four years.

But what’s harder to see, if you’re not there to live it, is how they haven’t. Poor Brazilians especially have a lot to be thankful for. Even as the economy has suffered, in one of the most unequal countries in the world, inequality has fallen, largely as a result of the country’s successful conditional cash transfer program, Bolsa Família. Unemployment is at a record low of 4.9 percent, down from 12.3 percent in 2002, while poverty rates have also declined tremendously. To a large extent, the poor owe all of these changes to former President Lula da Silva of the Worker’s Party (PT), as well as his successor, current president Dilma Rousseff. And many are, unsurprisingly, worried that a non-PT president will do what he can to take these gains away from them.

With the run-off election approaching in the most contentious Brazilian presidential election in recent memory, Brazilians have a lot to think about. The country has both a lot to gain and also a lot to lose. In the imperfect world in which they now find themselves, they may well have to choose whether to have their cake or eat it.