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A closer look at Brazil’s economy

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As new president Michal Temer tries to fix the economy through austerity, Kimberley Brown interviews Brazilian political scientist Sergio Gregorio Baierle.

13-12-2016-michel-temer-590.jpg [Related Image]
Brazil's new president Michel Temer. © Wikimedia Commons

The Brazilian economy isn’t looking great these days. The country is facing one of its most severe economic crises since the Great Depression, with unemployment at almost 12 per cent and inflation hovering around 8 per cent. The scene has caused a lot of anger, resentment and suffering across the country.

But Brazilians are about to get yet another shock, since the new President Michel Temer has chosen to respond to the country’s economic troubles with a series of neoliberal measures that include cutting funds to social programmes, healthcare and education – which many Brazilians have come to rely on.

Temer took office this summer after former President Dilma Rousseff was impeached for manipulating budget numbers. The move booted the left-wing Workers’ Party (PT) government from power for the first time in over 12 years. Temer then proceeded to load his cabinet with unelected officials and allies of his Brazilian Social Democratic Party government.

To unpack some of the implications of a floundering economy and new neoliberal policies, New Internationalist spoke with Brazilian political scientist Sergio Gregorio Baierle. Baierle previously worked with the Central Bank of Brazil and advocated for Participatory Budgeting with the NGO Cidade in Porto Alegre.

Brazil’s economy is in one of its worst recession its been in since the 1930s, while President Temer also announced last week that the economy isn’t expected to emerge from recession until the second half of next year – which is also later than expected. How is this actually unfolding in Brazil itself? How is it affecting people right now in the country?

The situation is awful – the situation for the poor but even for middle classes. It’s very difficult because the economy is not recovering.

For example, this year they [the government] have been able to produce some primary surplus for only two months of the year. They have not been able to achieve any primary surplus for the remaining months, so the debt with the banks is increasing, despite all this speech that there is a new hope for the economy and that many investors are trying to come to Brazil.

But what are investors actually doing? They are profiting off of the highest interest rate in the world. So, for example a debt in credit card costs you around 500 per cent a year. It’s unbelievable.

And for the government, of course, their interest rate is much less, although it’s still very high. They can make a lot of money. People with money, they actually don’t want to invest in anything because it’s much easier to make money just buying the debt bonds from the government. It’s much easier.

So, all the sectors are suffering. The industrial sector was already in a decline and continues to decrease, while the service sector was the last one to fall, but now is falling. And that means a lot of unemployment because this sector employs a lot of people. The traditional retail sector is also facing a severe crisis.

The only sectors that are surviving are the renters, for example the shopping centre owners. They live from the rent that people pay to put their stores there, so they can make some money. But even this group is suffering. They are suffering because, in some areas of the city, a lot of places are now vacant. This is just an example to show that the populations’ consumption too is decreasing.

I don’t see how to get out of this, because I think both projects are failing. Of course, this project of trying to implement a pure neoliberal political economyis just for the benefit of the very rich so it saves, at least, the banks. That’s its main proposition, save the banks.

But the other project that was using traditional Keynesian policies in order to push consumption and grow the economy was also not working. Dilma [former president Dilma Rousseff] tried to improve the economy through just investing government money in this process, decreasing taxes for industries or very low interest rate loans for some business sectors, and it didn’t work.

Brazil, of course, is now facing its most severe crisis in its history. But I think the problem is more complicated than that and it’s not restricted to Brazil: it’s not working in many places. Even in the United States, the gross domestic product’s rise was slow compared to other periods where they tried to recover from recessions. Now they recovered from the recession of 2008, but it was much harder than in the past.

Maybe we should consider crises not to be just crises in a linear time line: they are accumulating. So, I think we are in a process of arriving at a harsher crisis in the near future, internationally.

Do Temer’s neoliberal policies actually differ that much from what Rousseff was putting forth in the last couple of years? Because she was heavily criticized for her neoliberal policies too.

Yes, she was. Dilma received criticism from the right wing at the beginning of her term because of the policies she implemented in the first years. But in her last mandate she appointed a neoliberal minister to run the economy.

And some measures they [the Temer government] are implementing today, she tried to implement then, but was not able to get the majority to do that. The idea of reducing funding for health and education was already there, but what occurred was that now they really implemented that measure. Now they have accentuated these policies, and have the majority in congress, so they can pass what they want.

What are some of these specific policies that Temer has recently passed?

They passed one that freezes public expenditure on all levels of government for 20 years.

But the point is that they are also in a harsh crisis so they are investing almost nothing right now. So this policy implies that, regardless of how well the economy is doing, for the next two decades they will be investing next to nothing.. It’s not sustainable.

For now, they get political support for those regressive decisions and I don’t know how much time it will take for people to withdraw their approval. It depends how fast people realise they are not in a new economy that will build fast. No. They are in the beginning of a crisis that will get worse and worse and worse for the foreseeable future.

Right, this is the Proposed Constitutional Amendment (PEC) 241? This is one of the more controversial new measures. What will some of the more specific effects of this spending cap be? And how will it affect the legacy of social policies built by the Workers’ Party (PT)?

Now they [the Temer government] are reviewing all beneficiaries of all social policies, one by one. They are obliged to go through, for example, in the case of the family grant, Bolsa Familia, they are checking all the beneficiaries and they cut the beneficiaries that are making more than $100 per member of the family. So they are going into some details and attacking people individually, and making them feel guilty – and if they are making some more than the cap, even just a few cents more, they can no longer receive the family grant.

Some programmes they are cancelling altogether, and they are also preparing to increase the retirement age.

In terms of education, for example, they are proposing a change in the educational system, cuting some disciplines like history, sociology and philosophy at the high school level. They would just be an option, and not an integral part of the key curriculum.

Another proposal is for full time schools. In Brazil, we have a tradition of half time schools, with different morning and afternoon students. But many people in high school are also at the age that they need to work, so if they need to be at school full time during the day it will be very difficult. School will also become more expensive because students need to be there during the entire day. The government is also considering reducing the number of places in schools – because they will not be able to fit both morning and afternoon students at the same time.

How do you see the Brazilian public responding to these measures? Some areas of Brazil have very active social movements.

Yes, there is a strong response today. Public sector school workers are striking to protest the proposed changes in school policies.

But the problem in Brazil is that the media are strong and very controlling, and they have almost the same interests. Two or three groups control the mainstream media.

One of the reasons that they were in favor of Dilma’s impeachment was because they wanted more public funding for big media. And that was one of the first things the new government did, to put a lot of money in publicity in the big media, such as the Folha de Sao Paulo and Globo.

They are also offering them contracts. For example, the Globo was offered a contract for administrating museums, and they are also interested in the school books industry – they are going far beyond just being a newspaper. They are trying to be present in the daily life of the schools and communities.

Besides Michel Temer taking office recently, the Brazilian Social Democratic Party has made other gains in the country in the last few elections, including the municipal elections in October and in Sao Paulo a few weeks ago. They picked up a lot of seats that were once occupied by the PT. Some media organizations are interpreting this as an indication that voters, or citizens, are angry with the PT for leading them into a two-year recession. Do you agree with this?

It’s half true. Because what is really happening is that people have thrown their vote, most of the ballots are blank. Most of the people went there but they didn’t vote for any candidate. So, for example, in Puerto Alegre, the mayor was elected with only around one third of the vote. And most of the voters they voted for no-one.

People distrust the Workers’ Party for two reasons. One reason is what the media is saying about the Workers’ Party or whatever. But the other reason is that they don’t feel a strong difference between the Workers’ Party and the other parties. In the beginning people used to say the Workers’ Party was different, they were more ethical etc. But the middle class that traditionally showed more support for them now distrusts the party, although that doesn’t mean they are in favour of right-wing politics: they don’t see any other option that could follow.

Is there any truth to the media reports that it was predominantly the policies and actions of the PT that lead Brazil into this recession?

No. What lead to the recession was the end of the commodities boom. On the one hand, the end the commodities boom was linked to an internal problem where Brazil was not able to profit from the commodities boom. They were not able to recover industry or to establish a better relation with the financial sector in Brazil, because they had never really addressed that kind of dominance of the financial sector. And on the other hand, the crisis has an international context, because in my opinion the key point was the price of oil falling and hugely impacting the countries that were taking profit from the commodities boom, like Russia, Iran, and Venezuela. I think that the crisis in Venezuela would not be as big as it is today if the price of oil wasn’t as low as it became. Of course there are internal factors, but things don’t just happen by chance.

How will this affect the economic bloc between BRICS countries (Brazil, Russia, India, China and South Africa)?

The problem now is that Brazil is not part of the BRICS, Brazil is trying to get connected to the United States again. They think that the chance for Brazil to survive the crisis is to get a more friendly connection to the United States, increasing our exports there. I don’t think this will occur, especially with incoming US president, billionaire businessman, DonaldTrump. Why would they increase imports from Brazil if they can import for cheaper from other areas?

Over the past years, Latin American countries – particularly the traditionally left-wing countries, Brazil’s previsous PT government, Ecuador, the former Argentine government, and Bolivia – have been trying to create more regional union and trade amongst themselves, and to aid Latin American integration. How are Temer’s policies going to affect this Latin American unity?

Temer’s governmet is trying to break with this trend. Now the international relations sector in Brazil is very right wing. José Serra is the new minister for foreign affairs, and he is in favour of improving ties with Argentina, blocking Venezuela. And I think for Mercosur (Southern Common Market), for all the policies they have been trying to implement before, they will have a difficult time in the present.

Unless another change occurs in the near future… for Latin America I think we are going back to that traditional alternation between some liberation and some return to dependence on the United States policies for the area.

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