April 21st, 2014
12:05 PM ET

What happened to Brazil?

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By Global Public Square staff

The $32 million cable car in the video has not been used since 2012. There is a federally funded extraterrestrial museum, also abandoned. And there is a multi-billion dollar railroad. It was supposed to help farmers from impoverished remote areas transport soybeans. Construction began there eight years ago. Residents have been displaced, land wrecked, but the railroad will probably never be built.

What if we told you that these shuttered, big-ticket infrastructure projects are in the country that will host the world's biggest sporting event in June? What in the world, right?

We’re talking about Brazil, of course, host of this year's FIFA World Cup and the only major economic power in South America. There's even speculation that bus and rail systems being built for the soccer tournament won't be completed until after the games are over.

This is a big comedown for a country that was seen as an economic powerhouse – the B in the BRIC countries – and even made a bid to become a permanent member of the U.N. Security Council. Now, over the last five to seven years, Brazil did experience a boom. It lifted some 40 million people out of poverty in the last decade and kept unemployment rates at record lows.

But, as Ruchir Sharma of Morgan Stanley points out, the Brazil boom was really just a side-effect of the China boom. It was a time of cheap capital, emerging markets were hot, and China was growing fast and sucking up Brazilian raw materials and oil. Brazil rode the commodity wave as China imported its soy, iron ore, petroleum and other natural resources. Between 2000 and 2010, Brazil's exports to China grew by about four times the rate of total exports. By 2009, China had eclipsed the United States as the leading importer of Brazilian goods. The following year Brazil experienced 7.5 percent growth. But it was short-lived. GDP growth dipped to just 2.7 percent in 2011 and declined further to 2.3 percent by 2013.

Why?

Well, as Sharma also points out, China also experienced a downturn, seeing its growth rate dip below 8 percent in 2012 for the first time in a decade. If you feast on high commodity prices, you fast when they fall. Most important, Brazil wasted the good years, postponing reforms, lavishing subsidies on its people, and convincing itself that it had found a magic growth formula that required no pain, no discipline.

That complacency now has a cost. Standard & Poor's downgraded Brazil's credit rating in March. It is not quite in junk status territory, but S&P warned that it would make further cuts if Brasilia did not change its policies.

Brasilia's public spending has been downright wasteful. It's not just the bloated World Cup investments, totaling an estimated $11.6 billion. According to one study, corruption cost the country up to $53 billion in 2013 alone. To top it off, inflation is soaring and businesses have compensated by raising prices. A restaurant tab in Sao Paulo or Rio can rival that of cities like New York or Paris.

To complicate matters, Brazilians will head to the polls in October. In the face of slipping approval ratings, President Dilma Rousseff has vowed to cut public spending, rein in the deficit and enact reforms. It may be enough to get her reelected, but will it be enough to save the Brazilian economy?

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Topics: Brazil • Economy

soundoff (76 Responses)
  1. FreeBrasil

    Good job missing the elefant in the room, the communist takeover of Brazil. No wonder nobody believes the Commie "News" Network anymore. You people are a joke.

    April 27, 2014 at 9:57 am | Reply
  2. Lais

    realidade triste

    April 29, 2014 at 10:14 am | Reply
  3. Alexandre Henrique

    Unfortunately the PT (Party Workers party) proved a huge incompetence!
    Former President Lula deceived the whole world seeming to be a good ruler. But this was false. He fooled you, Obama, Bono and all the world. He is a fake!
    We root for the Brazilian president Dilma to be not re-elected.
    For the sake of our future and Brazil

    May 2, 2014 at 6:38 pm | Reply
  4. marcosdutra

    The answer is simply. This is what happens when a Marxist government stays in power for 12 years. They destroy the country.

    May 5, 2014 at 8:03 am | Reply
  5. Brazilian

    "bus and rail systems".... Is that what you guys are expecting for the World Cup? The only transport system we have here is the one made by ourself ( our vehicles )..using the miserably streets..... Who depends of public transport... Well... I can say, "god bless you"

    May 8, 2014 at 8:17 pm | Reply
  6. Anonymous

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    May 9, 2014 at 6:36 pm | Reply
  7. Daniel

    The only shocking thing about this is that Fareed sounds surprised by this. Brazil's corruption has been an affliction for as long as the country has existed.

    May 20, 2014 at 2:32 pm | Reply
  8. Philip

    Journalists should do more research before making sweeping statements.The forty million people lifeted out of poverty and the emerging middle class in Brazil are no more than myths,perpuated by the left wing media.
    A lot of people get free cash from the government now true,but that doesnot lift them out of poverty.In fact.many women,single mothers,are having more and more children to claim more cash and this is creating a new generation of poor people.Oil exports have never been a big part od the economy here,in fact Brazil is still a net importer of oil and that wont change much at all over the next ten or twenty years.The pace of development of the oil sector is so slow and so costly being burdened with countless protectionist policies that most of the oil will probably remain where it is,for decades to come.

    May 21, 2014 at 6:00 am | Reply
    • Lia Domingues

      Mr. Philip is absolutely right.
      And instead of providing education (so people could get better payments on better jobs), this government lowered the values of the table that define the classes, so they could include people that make USD 150/month (yes! that low) as middle class. With this amount, it's impossible to have a decent house and meals and clothing with such small amount!
      This is the way that 40 million "rised from low classes". An absolute illusion.
      What a pitty.

      May 25, 2014 at 10:00 pm | Reply
  9. Bruce

    As a Brazilian, I love soccer and the World Cup. I have great memories from '94 and '02. I've always supported Brazil's national team but, every sensible Brazilian knows that we should not have hosted the World Cup. First, because our government is the most corrupt and incompetent in the world. The World Cup was a great opportunity for the government to steal from us a "little" more and to show the world how incompetent the Brazilian government is. There is no way they would've made the deadlines. They weren't even planning on it. The "jeitinho brasileiro" of doing things. Brazil is extremely violent, the prices during the World Cup are outrageous and Dilma lost her mind when she said this would be the best World Cup ever. Well, maybe for PT and their buddies who made rivers of money. Honestly, I'm just scared that even with all of this, PT might still win this year.

    May 22, 2014 at 1:37 am | Reply
  10. Maria da Gloria Bach Wagner

    Being Brazilian and living in the country,must say that since my teenagers years or 60th years ago, I have been listen all sort of insoluble problems about the incompetency of our government and their politicians chosen by the population. I mean that nothing has been changed and the World Cup was an unthinkable project. Let's give the world a surprise showing to them how great Brazil as a nation is. After the W..C. the problems will continuously spread again, but
    our dirty clothes will be washed far from the world eyes and years. Break a leg W.C. and we will be champions again. Tchau

    May 24, 2014 at 8:20 pm | Reply
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