In late 2014, Brazil seemed on the verge of a meltdown. Its economy had
grown a mere 0.1 percent that year, as its currency (the real) dropped
like a stone and
business confidence plummeted. In response, in November of that year Brazilian President Dilma Rousseff
turned to
a Chicago-trained technocrat — a common antidote among Latin American
leaders. Domestic and international investors welcomed the appointment
of Joaquim Levy, a former banker and fiscal hawk, to lead the finance
ministry, but they acknowledged he would have his work cut out for him.
If Levy hoped to enact the drastic fiscal cuts and structural reforms
needed to fix the careening economy, he would have to first overcome the
resistance of not only a fractious congress, but also many members of
Rousseff’s leftist Partido dos Trabalhadores (PT) and her cabinet.
Success would ultimately elude Levy. In December 2015, he
quit, handing the ministry over to
Nelson Barbosa,
another well-respected economist. But Barbosa lacks Levy’s credibility
among investors. And the task before him has only become more
unenviable. He will have to push through his predecessor’s stalled
reforms, while turning around an economy that suffered a GDP contraction
of
3.7 percent in 2015, staving off potential
debt crisis,
stabilizing the real
, and avoiding what analysts predict could become Brazil’s worst crisis since 1901.
The first step to fixing Brazil’s crisis will have to
involve recognizing that the rot goes much deeper than it might seem.
Brazil’s troubles began with the downturn in the global commodity
markets, which once bolstered the country. But the roots of the malaise
trace much farther, to a historically autarkic economic model, a
political system hobbled and corrupted by party factionalism and
localism, and a constitutional
carnaval of guarantees for social rights and payouts.
