Brazil’s economy in doldrums as Games near

With figures showing that Brazil’s economy stalled in 2014 and shrank 3.8% last year, the country heads towards its worst recession amid warnings such a development could cast a shadow on the Olympic Games in August, and deepen the political crisis.
The scenario is deplorable indeed. The country’s primary fiscal deficit is forecast to be around $47 billion. And the government is confronted with double-digit inflation, unemployment at a record 11%.
Worse still, Brazil’s debt amounts to around 67% of its gross domestic product. Its rising debt and slowing growth have prompted credit-ratings firms to cut Brazil’s bonds to junk status, as economists are predicting that ratio may rise to 80% by 2017. While unemployment rose to 9.5% on Thursday as wages fell 2.4%, both trends forecast to worsen. One in five young Brazilians is out of work, and Goldman Sachs predicts the South American may be facing a depression.
Police, teachers and other government workers in Rio de Janeiro have seen pay cheques delayed because of the cash crunch. Retirees have protested because of unpaid pensions.
By the end of 2016, Brazil’s economy may be 8% smaller than it was in the first quarter of 2014, when it last saw growth; GDP per person could be down by a fifth since its peak in 2010, which is not as bad as the situation in Greece, but not far off. Two ratings agencies have demoted Brazilian debt to junk status.
Amid political turmoil and the economic slowdown, the August 5-21 Olympics and September 7-18 Paralympics in Rio de Janeiro will be held for the first time in South America. Rio’s state budget shows a $5.6 billion shortfall for 2016. Royalties from oil — the state’s main revenue-earner — are projected to collapse from $3.5 billion in 2014 to just $1 billion this year.
In an attempt to boost preparations for the Olympics, Rio state authorities declared a “state of public calamity” on Friday over a major budget crisis in order to release emergency funds to finance the Olympic Games.
The decree authorises the state to “adopt all necessary emergency measures to ration essential public services in order for the Rio 2016 Olympic Games and
Paralympic Games to take place”.
Earlier in 2008, Brazil weathered global downturn storm with stimulus spending, and is trying to again inject money into the economy to spur demand. In January, the government unveiled some $20 billion of subsidized loans from state-owned banks such as the BNDES to boost agriculture and builders of big infrastructure projects. But it is doubtful it could do so again due to diminishing tax. The Planning Ministry said the government needs to cut around $5.9 billion of spending to meet its budget target. The areas of strength in the economy face tough challenges. Prices of Brazilian commodities such as oil, iron ore and soya have slumped: a Brazilian commodities index compiled by Credit Suisse, a bank, fell by 41% since its
peak in 2011.
Indeed, the commodities’ bust has hit economies around the world, but Brazil has its own problems, including structural weaknesses, poor productivity and misdirected public spending that exacerbated the damage.
It is but an irony that Brazilians who basked in pride in 2009 when their country won the bid to host the Olympic Games, are now scared about the preparations to host the Olympics due to the political and the economic situation.
It is to be recalled that when the Games were awarded to Brazil in 2009, Luiz Inácio Lula da Silva, then president, pointed proudly to the ease with which a booming Brazil had surmounted the global financial crisis. He had every reason to be then proud because of his successes that earned the right to host the Olympic Games.
Political elite should come together to host the Olympic Games and cooperate to avert an impending recession. Without doing so, the country could plunge into worst recession ever. And the Games could bring disgrace to it!