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Behind the protests, Brazil's dysfunctional economy

Behind the Brazilian protesters’ slogans denouncing the cost of public transport and spending on World Cup preparations is unhappiness with the rise in cost of living in Brazil’s cities, as well as with deficient public services.


The anger of the Brazilian protesters is not dissipating.

On Tuesday, June 18, 50,000 of them took to the streets of Sao Paulo to express their anger at the government, as President Dilma Rousseff said that she was “listening” to the aspirations of a country in the throes of a widespread protest movement based in the country’s big cities.

Brazil President Dilma Rousseff on Thursday cancelled a trip to Japan planned for later this month as her government grapples with a mass protest movement.


But some are starting to grow impatient with the president’s reassurances, and deplore that she has not yet proposed any concrete solutions.

“The government doesn’t know what to say; they have no back-up plan,” one protester told Brazilian TV channel Globo News.

The absence of a quick fix can partly be explained by the nature of the protesters’ demands. The anger over the rise in the cost of bus tickets and the spending on preparations before the 2014 World Cup, which Brazil is set to host, has indeed shed light on the dysfunction of the country’s current economic model.

Spiralling inflation

The increase in bus ticket prices (0.20 real, or 0.06 euros) is symptomatic of the inflation that has been plaguing Brazil for several months. “Prices are going up at a rate higher than 6% per month, which is higher than the 4.5% objective established by the government,” explained Christine Rifflart, an economist specialised in Latin America at the French Economic Observatory (OFCE).

The rise in public transportation costs is part of a larger increase in the cost of living in Brazil. Prices of basic goods like tomatoes rose by as much as 90% in a year, for example. Rent has also been on the rise over the past several years, increasing by an average of 120% since 2008. “This inflation is essentially due to the increase in salaries,” Rifflart pointed out.

Consequently, the poorest Brazilians – those whose salaries have not risen – are getting poorer.

“Brazil remains one of the countries with the highest level of inequality when it comes to salary and access to social services,” noted Jérémie Gignoux, an economist at the Paris School of Economics.

If the Brazilian government succeeded in significantly lowering the poverty rate in the country, which went from 34% of the population in 2004 to 22% in 2009, authorities today are having a difficult time stopping the spiralling inflation.

The government is indeed stuck between two, somewhat conflicting priorities: the need to fight inflation and the need to stimulate the economy so that it is healthy again. Brazil’s economy, the seventh largest, grew “by only 0.9% in 2012, essentially because of low export levels,” Rifflart said – compared to an average annual growth rate of 3.6% over the past decade.

In order to revitalise the sale of Brazilian products abroad, the government could lower its currency rate in order to make exports less expensive, but that could end up worsening inflation.

The World Cup: a bitter pill to swallow

But it is not so much Brazil’s poorest residents who are in the street marching in protest against the cost of living. “Students and the middle-class Brazilians are also participating in the protests, which makes this a slightly unusual social movement,” Rifflart observed.

For the new middle class, the spending related to hosting the World Cup in 2014 is a hard pill to swallow. “They find it indecent to spend between 11 and 15 billion dollars to organise this sporting event, while public services and infrastructure need money,” the economist explained.

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The government is therefore faced with middle-class citizens demanding public services that are up to the level of their new social status. “It’s the price Brazil is paying for the growth that allowed 30 million Brazilians to lift themselves out of poverty and join the middle class over the past several years,” said Stéphane Witkowski, chairman of the board at Paris’s Institute of Latin American Studies, in an interview with French daily Le Figaro.

Moreover, the quality of education available to most Brazilians remains “very weak”, noted Christine Rifflart, while the best schools are still largely attended by those who can pay for them: the richest Brazilians.

Brazilian authorities have said they are going to revamp public services. But concrete plans and proposals have been slow to emerge.

And, judging from the massive crowds that have made their way through the country’s big cities over the past 10 days, the protesters are no longer willing to wait.

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