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Brazil's Protests: Can President Roussef Meet the Challenge?



Over the last few days protests have overwhelmed Brazil's largest cities, surprising international observers and, apparently, the government of President Dilma Rousseff. What has caused this outpouring of opposition and what can be done to address the protesters' anger? The most immediate factor is anxiety about inflation. The protests originated with a movement of students protesting a rise in bus fares. The proposed increase was from 3 reals to 3.20 reals (about $1.40 to $1.50 at current exchange rates). Inflation has been a growing concern in Brazil over the past year—in March, the inflation rate passed through the central bank's inflation targeting upper band of 6.5 percent and has hovered around 6.5 percent since. The most famous other manifestation of concern over prices was the tomato war of last year, which started when a well-known Italian restaurant in Sao Paolo refused to serve tomatoes in response to rising tomato prices.

Inflation is a major concern among Brazilians, especially those over the age of 30 who remember the hyperinflation of the past. In 1994, the annual change in the consumer price index was over 2,000 percent. The so-called Real Plan, in which a new currency was introduced—in conjunction with measures to stabilize the economy, including delinking contracts to inflation—brought an end to that era of hyperinflation. Over the past decade and a half, Brazil's inflation has remained in the single digits, averaging between 5 and 6 percent over the past decade.

A more profound factor in the current unrest is widespread dissatisfaction with the country's governance. There is a perception of generalized corruption, a lack of investment in the basic necessary infrastructure for development, and a feeling that the country is not getting adequate government services or a sound economic environment in return for very high taxes. While programs geared towards alleviating poverty are tied to education—most famously, Bolsa Familia, which offers cash transfers to families in exchange for ensuring children's school attendance and having them receive key vaccinations—the education system has not improved. Brazil ranked 108 out of 144 countries in terms of "quality of education" in the World Economic Forum's Global Competitiveness Index for 2013.

Infrastructure also badly needs investment: The quality of Brazil's roads, railroads, ports, and air transport facilities rank among the worst in Latin America. Protesters are apparently galled that the government is putting resources into improving infrastructure for the upcoming World Cup (2014) and the 2016 Rio Olympic Games, instead of other priorities, but in any case many of these projects have been delayed and are going over budget. These problems have reinforced the view that the general populace will not benefit from the infrastructure improvements and that money could be better spent on development. It is no coincidence that protests emerged right before the launch of the Confederations Cup, a prelude to the World Cup. Allegations of bureaucratic corruption and abuse of the Bolsa Familia program by politicians increased wariness about the government's ability to further the lot of the middle class. Businesses are also frustrated: Brazil notoriously ranks in the bottom tranches internationally in ease of doing business indicators.

Finally, there is the fear of backtracking from recent gains against poverty. Over the past decade, sound macroeconomic conditions supplemented by pro-poor policies, such as the conditional cash transfer program Bolsa Familia and its variations, have helped bring millions of Brazilians into the middle class. This situation remains tenuous, however. Inflation is a regressive tax, and sustained increases in inflation could propel them back to poverty. And while poverty has been reduced, inequality remains. The most recent numbers from the World Bank show that the top 10 percent of Brazilians control 43 percent of the nation's wealth (down slightly from 1995, when they controlled 48 percent), while the bottom hold only 0.8 percent—better than the 0.6 percent held in 1995, but still miserable.

President Rousseff is thus facing a challenging year. After a decade of higher-than-average growth and a rise in Brazil's international image (remember the Economist cover with Christ the Redeemer rocketing up from the Corcovado), Brazil is now in the depths of a hangover, with less than 1 percent growth last year. Growth this year is predicted to be modest. Recent polls show a decline in the president's popularity of about 8 percent. These recent protests clearly indicate strong popular dissatisfaction with the state of the country. They also show a renewed willingness for participation in a society that has not seen this type of public outcry in the past.

Several cities have started to roll back the bus fare increases that sparked the protest flame. The growth of the movement indicates that this is not enough. More fundamental issues need to be addressed. So far, President Rousseff has shown sympathy with the protesters, saying that "Brazil woke up stronger today." Brazil will be stronger in the future if these protests focus the government's attention on investing in the basics for economic opportunity: infrastructure, social capital, and the unraveling of the many components that make up the ribbons of red tape tying up nearly every commercial transaction, known as the famous custo Brasil.

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