A Rio trucker’s woe and the threat it poses to President’s dream

epa05140270 Brazilian President Dilma Rousseff speaks during the inaugural session of the Congress for the legislative year in the country, in Brasilia, Brazil, 02 February 2016.  EPA/Fernando Bizerra Jr.


Of the 40 million people who climbed into Brazil’s middle class during the boom years of the previous decade, almost one in 10 has already slid back down. Marco Antonio dos Santos Correia fears he may be next.
The 51-year-old trucker bought his vehicle and Rio de Janeiro apartment using borrowed cash, joining the millions of other Brazilians who benefited as household credit surged. Now, access to easy financing is drying up, and members of the newly minted middle class like dos Santos Correia find themselves tottering on the verge of poverty once again.
“I’m looking into selling my apartment because I don’t have the conditions to survive and keep up the same quality of life,” said dos Santos Correia, who once had a fleet of as many as eight small trucks that shuttled food and catering supplies around Rio. Today, it’s down to one. “I bought everything with bank financing.”
None of that bodes well for President Dilma Rousseff or her Workers’ Party as they try to pull Latin America’s largest economy out of its worst recession in a century. The tactics of her first term in office — injecting billions into state banks to dramatically expand lending while ramping up spending on social programs — are now off the table. The government is grappling with its own exploding debt load and budget deficit that has swelled to almost 11 percent of gross domestic product from 3.3 percent two years earlier. As a result, her administration is cutting back just as consumers and businesses tighten their belts, leaving Brazil with no obvious engine to fuel its
“I believe many more people will return to their old social classes this year,” Carlos Thadeu de Freitas, chief economist at the National Commerce Confederation said. “People are afraid of losing their jobs, so they’re not shopping, not taking on debt and they’re selling. Really it’s a recession the likes of which we’ve never had.”
Millions of disaffected Brazilians took to the streets across the nation on Sunday to protest Rousseff’s government and praise the officials behind a sweeping corruption probe that has reached the president’s inner circle. Anti-government protests have typically drawn the support of the wealthy and higher-educated, but this time around it appears the protests lured a larger number of Brazil’s poor than in the past, according to Marco Antonio Teixeira, a professor of political science at the Getulio Vargas Foundation.

Fallen Champion
Back when Brazil’s economy was still booming, it was stories like dos Santos Correia’s that ruling politicians pointed to as proof that their mix of socialism and capitalism was working. Rousseff, whose party has long been the champion of Brazil’s poor, regularly cited the 40-million figure when running for re-election during her 2014 campaign. But her euphoria overlooked a troubling trend: A large part of Brazil’s growth was fueled not by gains in productivity or real wages, but by credit.
Brazilian retail sales climbed 93 percent in the decade through 2014, while the rise in real wages was less than half that, data compiled by Bloomberg Intelligence show. Household debt as a percentage of disposable income topped 45 percent in November from a low of about 18 percent in January 2005, when the central bank began collecting the data.
Today, Brazilians are tapping into their savings at a record pace. Net withdrawals from savings accounts amounted to 53.6 billion reais ($14.2 billion) in 2015, more than five times as much as the previous record in 2003, according to the central bank. Around half of that was used to pay down bills, and Brazilians also shifted some cash to higher-yielding investments as the benchmark interest rate sits at a 9 1/2-year high of 14.25 percent.
Meanwhile, new bank credit for mortgages fell 33 percent in 2015, the first drop since at least 2001, according to Abecip. In Brazil, bank mortgages are the domain of the middle class. The poor largely finance their purchases through state programs, while the rich often pay in cash. In today’s downturn, 3.7 million members of Brazil’s middle class have already seen their standard of living slip in the first 11 months of last year, according to a study by Banco Bradesco SA.

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