Wednesday, June 03, 2009

Brazil and the economic crisis

When the ‘magic moment’ turned to nightmare

Brazil: more dependent than ever

President Lula fancied his country’s economy was ‘decoupled’ from the rest of the world’s. But when the economic crisis reached Brazil this March, it came on a tidal wave. Half a million people are now in poverty or extreme poverty

by Renaud Lambert

In May 2008 the US economy had begun its decline, but in Brazil things still looked fine. President Luiz Inácio Lula da Silva reckoned that his country was experiencing a “magic moment” (1): after a 5.67% rise in GDP in 2007, government morale was high. What was going on elsewhere didn’t matter; growth would continue “at its present rate for the next 15 to 20 years” (2).

By October 2008 the international financial system was collapsing. But Brazil still wasn’t worried. “Up there [in the US] the crisis is a veritable tsunami. If it arrives here it will only be a little wave, not even big enough to surf on,” the president said reassuringly in a speech on 4 October. A few months later, Luciano Coutinho, head of Brazil’s national development bank (BNDES), added: “Decoupling has, yes, taken place,” (3), alluding to the theory that the growth of countries on the periphery of the world capitalist system had become independent of the shocks felt at its centre.

Then came March 2009. When the wave did arrive, it brought a storm with it. The Bradesco bank’s estimates of GDP growth plummeted from more than 4% in June 2008 to 2.5% in December – and then to -0.3% this April. The rating agency Morgan Stanley has even predicted a 1.5% contraction in the Brazilian economy, which would be its biggest setback since 1948 (4).

In the last quarter of 2008, Brazil’s industrial output dropped by 19%. Eight hundred thousand workers lost their jobs between October and January (nearly 1% of the workforce), and that doesn’t even begin to take account of job losses in the informal economy, which employs around 40% of Brazilian workers. Half a million Brazilians have found themselves back in poverty or extreme poverty. The “magical moment” has turned into a nightmare from which Brazil will not emerge, according to its president in a speech on 6 April, until “we ask God for the crisis to disappear from Europe, the US and Japan”. More soberly, the Financial Times concluded on 11 March that Brazil’s economic results meant an end to the debate about its immunity from global contagion. The myth of decoupling was over.

None of this is surprising, though, given how much has been done in the past 15 years to increase the country’s dependence on foreign capital. One of the most significant developments has been the acceleration of foreign access to Brazil’s financial markets. This is all the more remarkable as it was made possible by sociologist-turned-president Fernando Henrique Cardoso, whose work aimed to “build a path to socialism” (5) and the former trade unionist, President Lula.

Something Marx never imagined

In the late 1960s, Cardoso, who studied at the EHESS (Ecole des hautes études en sciences sociales) in Paris, rejected the idea that a country on the periphery could develop by means of foreign capital without increasing its dependence: “The system of domination reappears as an ‘internal’ force through the social practices of local groups and classes which try to promote foreign interests” (6). Twenty years later, first as finance minister (1993-4) and then president (1995-2002), he discovered that the world had changed. He told Mais! magazine in 1996: “We have something that Marx never imagined… Capital has very quickly become internationalised and today it has become abundant. Some countries are able to derive profit from this situation. Brazil is one of them”.

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