Brazilian Economy Grows Worse as Credit Rating Drops

February 19, 2016Brazilby EW News Desk Team

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Recent data suggests that Brazil’s economy contracted for the tenth consecutive month in December, and Standard & Poor downgraded the South American nation’s credit rating further below junk status, according to the New York Times. Brazil has suffered from lower commodity prices, including mismanagement on the part of President Dilma Rousseff, and a loss in investor confidence. Experts believe the country will shrink 3.0 percent in 2016.

S&P not only downgraded Brazil because of its political and economic shortcomings, but also the government’s failure to control the fiscal deficit. The downgrade came as a surprise to officials. They are considering a freeze in the budget and cutting the 2016 fiscal target, hoping the agency would reverse its decision.

Brazil was once the crown jewel of developing markets but became one of the worst performing economies in the world, and despite austerity and spending reduction measures; analysts see little hope for a substantial recovery in the near future. According to the country’s central bank, the economy contracted 4.08 percent in 2015, and the Portuguese-speaking country is experiencing a recession not seen since the 1930s.

The government cannot be blamed for shortfalls in the world market, but a great deal of blame lies with Rousseff’s failed policies. She conceded making past mistakes and failing to see the full weight of the economic crisis in 2014, but she believes the economy will improve as her administration reduces the deficit and inflation.

While her candidness on previous mistakes is rare for a politician, it does not win confidence from the business community and voters, especially Congress. She not only faces heat from a public furious over the nation’s high unemployment rate, but a Congress that intends to impeach her over a corruption scandal involving state-oil giant Petrobras. Many Brazilians and investors would be happy to see her go.  

Her relationship with investors has been contentious, and she tried to appease them by appointing a conservative finance minister, but his removal and failure to jump-start the economy left her with damaged credibility, most notably from members of her own party.

Leftist governments throughout South America are undergoing hard times politically, with the recent win of center-right President Mauricio Macri in Argentina, and the potential ousting of Nicolas Maduro of Venezuela.

If Rousseff is impeached, Vice Michel Temer would take her place, belonging to a rightist party, but analysts question whether he or another successor could form an effective coalition, notes the Washington Times. A politically isolated Rousseff faces an impossible task in reinvigorating a dead coalition, but she must find a way to do so while regaining the trust of investors and diversifying the economy.

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