Even if you’re not a soccer aficionado, watching Germany score four goals in six minutes during the final game of the 2014 World Cup in Rio de Janeiro was epically painful. After all, that was supposed to be Brazil’s moment to shine on the world stage. Futebol is a critical part of the Brazilian national identity, and losing in a blow-out on their own home turf to Germany was nothing short of tragically embarrassing. Today, Brazil’s challenges go far beyond a globally televised, hyper-competitive soccer game, as their economy is a sinking ship. Further complicating matters is the political crisis that’s gripping the nation, as their president faces possible impeachment. There are also serious doubts about the country’s readiness to host the Olympics next summer.
For many onlookers, Brazil has always been the country of the future, as it has ample population and resources. Brazil is massive, as it is larger than the United States if you don’t include Alaska. It’s an enormously charming country, with an irresistibly seductive language and culture. Unfortunately, Brazil’s economic potential has been stunted for decades by political dysfunction. For those with a more negative outlook on this country, you’ll hear them say that “Brazil will always be the country of the future.” That means that the bright future that many have envisioned may never happen.
The economic possibilities of this Latin American superpower tempted global investors to pump their dollars into this emerging market for years. Following the financial crisis in the United States and the European Union, rock-bottom interest rates and a tsunami of easy money created ideal conditions for investing in Brazil and other developing economies. Investors would borrow their money cheaply in places like the United States and then put that money to work in economies where they could get a higher rate of return. The economy at home was sluggish, so it was smarter to export their money and invest in places with more growth like Brazil.
The country, despite its internationally renowned charm and stunning beauty, has a number of problems that are immediately evident. Brazil is incredibly unequal, as the gap between the rich and the poor is unparalleled, even by Latin American standards. Favelas or shanty towns are interspersed between pockets of extreme wealth. The savage differences between fellow citizens living in close proximity creates a security nightmare. The state of the country’s infrastructure is horrific, and the political system is rife with corruption and government ineptitude.
These realities were sidelined for years, as the rush of money from the developed world set the stage for an economic success story. Millions were lifted out of poverty, and a solid middle class appeared for the first time in recent memory. It seemed that the country had turned the corner. Investors heralded the dawn of a new era, as Brazil’s unprecedented prosperity masked systemic problems. These problems are now once again rearing up.
The looming economic train wreck began to become much more obvious last year, and it has been getting worse rapidly. The iconic Brazilianaire Eike Batista, completely crashed and burned, losing his entire net worth of more than 35 billion dollars seemingly overnight. Oil and other commodity prices plummeted. China’s slowdown caused further economic deterioration, as the Brazilian economy had grown increasingly dependent on raw material exports. Today, the stock market continues to trend downward, unemployment is spiking, and the economy has tipped into a deep recession. The Brazilian currency, the Real, has dropped like a stone. The Real was at 2.5 per dollar less than one year ago. Today, it’s closer to 4 per dollar. Investors have gone sour on Brazil, and they’re all withdrawing their money as fast as they can.
To make matters worse, Brazil’s economic crisis is accompanied by a serious political crisis. The president, Dilma Rousseff, is facing impeachment following the revelation of alleged political corruption. The president’s approval rating is in the single-digits, and people are extremely dissatisfied with the direction of the country. There are also serious worries about the 2016 Olympics, which are set the held in Rio de Janeiro next year.
The country’s flagging economy and strained finances mean that people are upset at the billions that are being spent on the Olympics next year. Despite the bank-busting expenditures, it’s been widely reported that Rio is not even close to being ready for the games. Sewage is still oozing into waters slated for sailing competitions, and venues are far from complete. Security remains a major concern and political unrest is not out of the question. The Olympics’ first time in South America may not go as smoothly as Brazilian and Olympic Committee officials had planned.
Brazil’s experience has not occurred in isolation. In many ways, Brazil’s economic expansion has mirrored other developing economies that now face their own sudden deceleration in economic growth. Sadly, the home of Samba and Bossa Nova has crashed faster and harder than nearly any other economy in recent years. For those of us emotionally attached to Brazil through heritage and language, it is gut wrenching to watch such a stunning reversal of fortunes. Trying times will test the patience of the Brazilian people. Hopefully, Brasilieros will come to realize that a crisis is a terrible thing to waste, and press forward in instituting much needed political reform.
Photo by edwardotis
David is the Editor of Bold. He's especially passionate about millennial economic empowerment. A former local news reporter, David is originally from the Little Havana area in Miami, and later became a pioneer resident of the Disney-inspired town of Celebration, Florida. David holds a Master’s in Public Policy from the Harvard Kennedy School.