- Ethan Maia de Needell, B.A., International Studies
- Hector H. Sandoval, PhD, Bureau of Economic and Business Research and Department of Economics
It was not long ago that Brazil was thought to be one of the next few major global economies. These fledgling economies became collectively known as BRIC, an acronym for the member states (Brazil, Russia, India, and China). However, what was once a source of optimism for Brazil has now become a source of gloom.
Over the past two years, Brazil has fallen into a recession so destructive that economists are unsure when Brazil will recover. It does not help that Brazil had to spend extravagantly on hosting international events such as the World Cup and the Olympics. Nor does it bode well for foreign investors that the political scene in Brazil has been mired in one corruption scandal after another, one of which has actually led to the impeachment of the nation’s president, Dilma.
With the increasingly globalized nature of the world’s economy, over the past few years Brazil and Florida have become linked. This link can be seen in several economic sectors in Florida, such as tourism, real estate, and the trading of goods. While Brazil enjoyed its economic prime in the early 2000s, this tie was beneficial. However, with the recent downward turn in Brazil’s economy, it has not taken long for their woes to become ours.
How does a country that once seemed to be full of potential fall from grace so drastically?
- The “Lost Decade” was a period of hyperinflation, growing poverty, income inequality, and political instability during the 1980s.
- Throughout this period, many different plans were attempted to combat the inflation, which was at 303% (Mello, 2012).
- Most failed or backfired, leading to the impeachment of Fernando Collor, who was succeeded by Itamar Franco in 1992 (Mello, 2012)
- Franco’s economists put together the Plano Real, which:
- Replaced the currency to the Real
- Deindexed the economy, which put a stop to “automatic corrections in prices and wages” (Mello, 2012)
- Floated the exchange rate, which set the value of the Real to the U.S. Dollar, causing imported goods to become more expensive, thus stimulating domestic manufacturing
- The Plano Real was very successful and the inflation was diminished to “less than 1 percent in 1996" (Clements, 1997, pg. 45). The man in charge of the economic team, Fernando Cardoso, was then elected to become president of Brazil
- When President “Lula” da Silva took office in 2002, he maintained and expanded many of Cardoso’s policies.
- From 2003-2006, Brazil’s “Gross Domestic Product growth reached 5.2 percent in 2004 – the highest rate in a decade and helped create more than 1.5 million jobs” (dos Santos, 2005).
- Lula was also able to achieve a trade surplus, ranking seventh largest in the world in 2003 (dos Santos, 2005). The minimum wage under Lula increased by 15%, poverty decreased steadily (Sola, 2012).
- During his administration, the world demand for Brazilian goods grew exponentially. By 2009, China overtook the United States as Brazil’s largest trading partner (Mondino, 2014) (Barbosa-Filho, pg. 196, 2007).
- Despite the recession that started soon after President “Dilma” Rousseff took office, she continued the trend of public spending, increasing fiscal deficit from 2% in 2010 to 10% in 2015 (“Brazil’s Fall”, 2016)
- Both the World Cup and the Olympics ended up being much more expensive than planned
- The World Cup, which was expected to cost Brazil R$ 5.342 billion ended up totaling R$8.3 billion (Custo dos esádios…, 2015). The Olympics this year also went over the planned $4.6 billion budget by 51% (according to modest estimates) (Leahy, 2016).
- Brazil’s trading relationship with China began to change, with Brazil providing the primary products (raw materials) for China, and China providing manufactured goods to Brazil. In 2004, 30% of Brazil’s exports were primary products and 55% were industrial goods. However, by 2013, primary products made up 47% of Brazil’s exports and industrial goods only making up 38% (Mondino, 2014)
- This is largely due to the overwhelming competition Brazilian manufactured goods faced with Chinese manufactured goods on the global market. By 2006, “91 percent of Brazil’s manufacturing exports to the world were already under threat from Chinese competition” (Kingstone, 2012)
- This dependence on primary goods proved to be a bane for Brazil’s economy. As China experienced its own recession, one of Brazil’s largest trading partners was no longer in a position to buy their goods.
- Unemployment has increased, the national deficit has increased, and public spending has remained too high. Many attempts to combat this, such as raising taxes, are backfiring as disposable incomes are getting severely damaged and consumer confidence is extremely low (“Brazilian waxing and waning”, 2016)
- Dilma has recently been impeached due to the manipulation of the government’s budget, being succeeded by Michel Temer, who is no stranger to corruption charges either.
With globalization of the world’s economies becoming the new norm, such a devastating blow to a country’s economy will no longer be an isolated event. Brazil, over the past few years, has been one of Florida’s biggest trading partners. Brazil has also been one of Florida’s major sources of tourism, buyers of properties, and foreign investment. However, amid the political scandal and economic stagnation, Brazil’s political and economic turmoil has been felt here at home. We are already seeing this effect in our trade and tourism with Brazil, both falling between 2014 and 2015.With the Real doing so poorly, Brazil is no longer in the same position to buy our exports. In fact, according to 2015’s Florida International Business Highlights between the years 2013 and 2015, Florida’s exports to Brazil dropped 19.6%. In 2013, trade with Brazil made up $20.5 billion and tourism gave Florida a $2.3 billion boost to our economy (Cooper, 2014). However, as the figures below show, these sectors have experienced losses over the past few years.
Because tourism is one of the biggest industries in Florida, Brazil’s recession has deprived the state of one of its largest tourist suppliers. Another market on which Brazil has a large effect is Florida’s real estate. Two of the most popular metropolitan statistical areas for Brazilian buyers, Miami and Fort Lauderdale, have seen their condo sales remaining either stagnant or steadily declining. These sectors of the Floridian market that have benefited from Brazil’s economic boom now find themselves at the mercy of the Brazilian recession, which unfortunately has no end in sight.
While interdependence is a practically inevitable consequence of the modern world, it does not necessarily have to mean mutual destruction. Whether it be to Canada and the United Kingdom for tourism, or Venezuela for the housing market, Florida will have to look elsewhere for countries to step up and fill Brazil’s shoes.
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"Brazil’s Fall." The Economist. 02 Jan. 2015. Web. 4 Apr. 2016.
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Dos Santos, Pablo. "Brazil's Remarkable Journey." Finance and Development. IMF, June 2005. Web. 4 Apr. 2016. <http://www.imf.org/external/pubs/ft/fandd/2005/06/fonseca.htm>.