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Brazil Besieged: Economically Battered Country Hopes for Olympic Rebound
The Washington Diplomat / January 2016

By Larry Luxner

All the world’s eyes will be on Brazil next August, when Rio de Janeiro hosts South America’s first Olympics ever. Yet for most of Brazil’s 204 million citizens, the Summer Games will amount to little more than 16 days of distraction from a worsening economic crisis that saw inflation hit 10 percent and GDP shrink by 3 percent in 2015.

Nor will the upcoming XXXI Olympiad do much for Brazilian President Dilma Rousseff, whose government is mired in various corruption scandals that at best has left her deeply unpopular, and at worst could lead to her eventual impeachment.

Meanwhile, Dilma’s predecessor and mentor in the Workers’ Party (PT), Luiz Inácio Lula da Silva, has come under increased scrutiny of late — and in September, Standard & Poor Ratings Services downgraded Brazil’s sovereign debt to junk, further threatening the government’s credibility with foreign investors.

On the surface at least, Luiz Alberto Figueiredo Machado, Brazil’s ambassador in Washington, doesn’t seem terribly worried — either about where the ongoing inquiries may lead, or about what economists already consider Brazil’s worst recession in 25 years.

“What you see is democracy at work. You see a country with strong institutions that are investigating and prosecuting persons accused of corruption,” he told us. “Some of them are very important businesspeople; some belong to political parties. It’s a victory for Brazilian society to see that independent, impartial institutions are doing their jobs.”

Figueiredo, 60, was Dilma’s foreign minister for a year and a half before assuming his current post Jan. 1, 2015. He spoke to The Washington Diplomat from his office at the recently remodeled Brazilian Embassy off Massachusetts Avenue.

“Other countries went through similar investigations of wrongdoing in the past. What is important is that this is not a crisis,” he insisted. “Not doing so would be a crisis, because then the institutions would not be working independently.”

The fact is that Brazil’s first woman president, who narrowly won a 2014 runoff election, has seen her approval ratings dip as low as 8 percent as federal investigators probe a massive kickback scheme at state-run oil giant Petrobras. Complicating matters is the 68-year-old president’s role as chairwoman of Petrobras during many of the seven years the alleged corruption took place. Prosecutors say the company approved inflated contracts to suppliers and subcontractors in exchange for $1.6 billion in kickbacks.

Some 77 percent of Brazilians in a February 2015 poll said their president knew about the corruption, in which more than 80 people have been charged with crimes. That — and the tanking of Brazil’s economy after years of prosperity — led to recent massive demonstrations in a dozen major cities including Brasília, the capital; São Paulo, Brazil’s largest metropolis, and the ambassador’s native Rio, amid calls for her impeachment.

In late October, political activists handcuffed themselves to a pillar in Brazil’s Congress, urging House Speaker Eduardo Cunha to act on an impeachment request made by lawyers from opposition parties. But the speaker — whose secret bank accounts have sparked accusations of corruption against him — is said to be in no hurry to set impeachment proceedings in motion. If he does, then a special committee would need a two-thirds vote in the House to start an impeachment trial in the Senate.

But Figueiredo discounts the significance of anti-Dilma sentiment across Brazil.

“Street protests are natural,” he said. “Every country has a leader, a president, a symbol — and it’s understandable that the anger would somehow be directed against the leader, as if the leader was responsible for the problems. What the investigations and prosecutions are showing is that those who are responsible are being held responsible.”

He added: “That anger also has to do with the economic situation. Brazil fared very well in 2008, when the world went through a major financial crisis that continues until today. We managed to protect the economy and achieve very important gains for the population; our policies have lifted around 40 million people out of poverty.”

Yet those gains are in danger of being virtually wiped out by the current crisis.

Brazil’s $2.2 trillion economy — seventh-largest in the world — is expected to end 2015 between 3 and 4 percent smaller than it was a year ago; that compares to a record 7.6 percent growth in 2010, Lula’s last year in office. In mid-September, Brazil’s currency, the real, fell to its lowest level since its introduction two decades ago, sinking to 4.0665 per dollar (recovering to 3.70 by Nov. 24). Meanwhile, growth continues to be sluggish in China, Brazil’s top client for commodities ranging from sugar to coffee beans.

Peter Hakim, president emeritus at the Inter-American Dialogue, a Washington-based think tank, has written extensively on Brazil.

“The economy continues to be very weak. It’s really wobbling very badly,” he told us. “There’s very little sense of any move toward sustainable recovery. There’s no sense that even the policies that would address some of Brazil’s most serious economic problems are having any real success.”

Hakim added that Brazil-watchers are still waiting for the economy to rebound.

“Unemployment has been rising. Brazil is in a very nasty recession, but frankly, this is less catastrophic than previous crises,” he said. “There’s broad agreement that expenditures have to be brought down dramatically. Brazil has to open up its economy more and take better advantage of international trade.”

To that end, Dilma visited the United States in late June and early July, meeting with President Obama in Washington and hobnobbing with top business leaders in New York as well as California’s Silicon Valley; adventures included visiting the Martin Luther King Jr. Memorial with Obama and riding in a self-driving car at Google Inc. headquarters in Mountain View, Calif.

Among other things, she and Obama agreed to boost the share of renewable, non-hydropower electricity to 20 percent by 2030 — a goal that would require tripling the use of renewables in the United States and doubling it in Brazil. Rousseff also vowed that Brazil would reforest 12 million hectares of Amazon rainforest over a 15-year period.

During her visit, the U.S. Department of Agriculture agreed to allow fresh beef imports from 14 Brazilian states, while the State Department said it would move toward visa-free travel — hopefully in time for the 2016 Rio Olympics.

Figueiredo said Rousseff’s trip, which he helped arrange, opened up “incredible opportunities” for the bilateral relationship.

“Dilma visited companies that already have large investments in Brazil. She is extremely interested in all aspects of science and technology, but more specifically in innovation. That’s the name of the game, and that part of her visit was to see how Brazilian institutions could interact with American institutions that are focused on innovative ideas,” he said.

Figueiredo’s first post was at the United Nations in New York, where he served for three years in the late 1980s. He also represented his country in Santiago, Chile; Ottawa, Paris (with Brazil’s delegation to UNESCO) and Washington, in the late 1990s.

Before returning to Washington for his current position, Figueiredo was Brazil’s permanent representative to the UN and, most recently, foreign minister. He said Dilma’s U.S. visit “really exceeded our initial expectations” and that “from the viewpoint of a new ambassador, I could not have gotten here at a better time.”

Others might disagree, including Hakim, who says Washington-Brasília relations have never really taken off the way they should have.

“The problem is not Brazil, and it’s not the United States. It’s the two countries together. They know the importance of the relationship but lack confidence and trust,” Hakim said, observing that bilateral trade totaled only $73 billion in 2014, compared to $590 billion with China and $534 billion with Mexico. “For whatever reason, Brazil and the U.S. have never found a way to really cooperate on much. The two countries like each other a lot, their business people work together and their diplomats get along — but actually turning goodwill and friendship into cooperation has been very difficult.”

Cooperation is even harder given the confusing signals coming from Brasília.

Carl Meacham, director of the Americas program at Washington’s Center for Strategic and International Studies (CSIS), notes that after Brazil’s downgrade by S&P, Dilma’s administration presented a plan to counteract the country’s “disastrous” budgetary deficit, now estimated at a record $13 billion, or 0.8 percent of GDP. But the proposed spending cuts and tax hikes could be counterproductive, he warned, further decelerating the economy — even as it faces widespread resistance across the political spectrum, including from within Dilma’s own left-leaning PT.

“Ultimately, the political and economic components of the crisis are intricately connected: Brazil is trapped in a vicious cycle, with the political instability feeding the economic crisis, and vice versa,” Meacham wrote in an Oct. 2 CSIS policy paper.

“If Dilma’s latest efforts to resolve the political gridlock by making concessions to the rival Brazilian Democratic Movement Party (PMDB) come from the correct assumption that the party will play a key role in determining her future, this move will most likely only add to the political fragmentation that is plaguing the country,” he warned. “There is no doubt Brazil needs a fiscal package — and that it needs it now. But it has to be something well thought-out and consistent, accompanied by measures that ensure a gradual return to growth. Otherwise, the remedy might end up being worse than the disease.”

Figueiredo admits he’s not an economist, so he lacks the technical knowledge to analyze Dilma’s response to date. But he says “what the government is doing is making deep cuts in the budget, and other measures that would somehow lead to disappointing [popularity] ratings. We think that by 2016, we will see a different scenario. The measures being applied now are a remedy for that — and remedies take time to work.”

Foreign trade comprises only 16 percent of Brazil’s GDP, so its exposure to China’s problems are “important but not decisive,” said Figueiredo. Nor, he said, is the drop in oil prices — which has seen crude fall to under $40 a barrel, even though Petrobras is now the world’s most indebted oil company. In June, the conglomerate announced a 37 percent cut in capital expenditures, with a plan to spend only $130 billion over the next five years instead of the initially proposed $206 billion.

“I think people understand what is going on,” he told us. “They also understand that economic difficulties happen to all countries. The United States is recovering from a difficult period. You have cycles in your economy and now we are going through this low cycle,” Figueiredo said. “When I talk with investors, they tell me they’re in Brazil for the long run and will invest even more.”

Peter Schechter, director of the Atlantic Council’s Adrienne Arsht Latin America Center, agrees to a certain extent.

“Six or seven years ago, The Economist had a picture on its cover of Brazil’s Cristo Redentor statue taking off like a rock. Now some people might think of it falling into the sea,” he quipped. “Beyond the headlines, though, Brazil has made massive steps to bring millions of people into the middle class. Brazil is going through a bad period now, but hopefully reforms that are needed are going to be passed.”

Schechter believes that Dilma will survive all attempts to impeach her and serve out her second term, which ends in 2018.

“Chances are good that sometime in 2016, the business cycle will begin to turn, and she’ll be able to do some of the reforms needed,” he said, adding that despite the bureaucracy of doing business in Brazil, “it’s a free-market economy [whose] institutions have shown themselves to be incredibly resilient. The justice system investigating the Petrobras scandal is admirable; a lot of other Latin American countries would love to have a justice system like the one in Brazil. These are federal employees, yet they are investigating corruption at all levels. Investors will take heart in the fact that there’s a judicial process that works.”

He added that investigators looking into the scandal which began within Petrobras have expanded their probe to big companies in the private sector as well as members of Congress from both Dilma’s PT and the rival PMDB.

“The ruling party does not have a monopoly on accusations of corruption,” he said. “This spreading scandal has touched everybody.”

Hakim believes Dilma’s chances of actually being impeached are very low, “unless someone finds that smoking email that would put her at the center of the Petrobras scandal,” he said.

“The general feeling in Brazil is that it’s not going to come any closer [to Dilma] than it has. The prosecutors had free rein and caught some of the biggest fish in Brazil. They’re going after Lula, in fact, but have not been able to find any reason to go after Dilma yet. If they do find something on her, only then she’s in trouble.”

Figueiredo bristled at suggestions that his president may have known about the shady dealings at Petrobras while she was chairman there, and became visibly upset when asked about a separate corruption investigation targeting friends and associates of Lula.

“I am here to take care of the relationship between Brazil and the United States, and that’s what I’m doing,” he said, refusing to answer any further questions about the former populist president, who left office in 2010 with a record 83 percent approval rate and according to Hakim “was Brazil’s most revered leader ever.”

The ambassador would much rather talk about the upcoming Olympics.

Coming only two years after the 2014 FIFA World Cup — which lured over one million foreign soccer fans to Brazil’s 12 host cities — the 2016 Summer Games, set for Aug. 5-21, are expected to attract 11,000 athletes and 7,000 staffers from 205 countries.

The Paralympics, which immediately follow the main games, will involve 4,500 athletes and 3,000 staffers from 178 countries, he said, reeling off statistics. Some 25,000 journalists will cover the Olympics, and another 7,200 will cover the Paralympics, with a combined broadcast audience of five billion people during 5,600 hours of live TV.

Asked if Brazil will be ready on time for the Olympics, he said “absolutely.”

“The World Cup was a huge success. It was more complex than the Olympics because we had 12 host cities. For the Olympics, it’s only one,” said the Rio-born diplomat. Officially, 400,000 foreigners are projected to visit Brazil during the Olympics, but it could end up being twice as much. In addition, he said, “we’ll have 85,000 security people, which will certainly be the largest security operation in the country’s history.”

The ambassador insisted that private investment in the upcoming Olympics is higher than any other sporting event ever, comprising 56 percent of the total $10 billion the Games are likely to cost — though noted economics professor Andrew Zimbalist estimates that Brazilian taxpayers will bear 75 to 85 percent of the final costs.

“Almost all the Olympic venues are ready, and other structures are right on schedule. So we have no concerns about the preparations,” the ambassador said, adding that “if you go to Rio now, you’ll see a totally different city, especially in the infrastructure: transportation, accommodations, new attractions and new museums. Old areas of the city are being revitalized. The port area is one clear example of that. We know there will be long-lasting benefits for the population, especially in infrastructure.”

Yet many Brazilians are still furious over the $3 billion their government spent building five new stadiums and renovating seven others for the 2014 World Cup.

“Brazilians have not benefitted from the tournament. There has been no legacy for them. The World Cup still makes them angry. There is regret that we even staged it,” Rio Mayor Eduardo Paes told ESPN in mid-2015, estimating that corruption at all 12 venues comprised 30 to 40 percent of final construction costs. “ Paes added that “there was a last-minute rush to finish the work, and this is where the corruption kicked in, because a lot of public money had to be thrown at the stadiums to ensure their delivery.”

Figueiredo denies such accusations, telling us “we were ready when we said we’d be. We really were, and we proved it during the games. Fans from all nations watched the games in fun, peace and harmony — and this is a huge lesson for all countries.”

However, the real lesson may be that Brazilians are simply sick and tired of business as usual.

“Brazil is running out of both the goodwill of foreign investors and the cash surpluses of a decade-long boom in commodities. Its failure, yet again, to find ways to diversify its economy away from dependence on commodities has now come to a head,” said New York communications executive Tom Vogel, who specializes in Latin America.

“All of this economic pressure magnifies the importance to the average Brazilian of any corruption,” Vogel said. “Anyone who has followed Brazil and Petrobras over the last 30 years cannot claim to be surprised by the scandal there now. What’s new is that more Brazilians are aware of the depth of the corruption and understand how it directly connects to the country’s economic woes today.”

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