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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.
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?