Brazil’s Crisis Stalling Economic Reforms Seen as Crucial
Work longer hours. Get fewer benefits. Retire years later. Those are the ingredients of the bitter medicine Brazilians are being asked to swallow as a cure for the country’s moribund, overregulated economy.
It would be a tough sell under any conditions, but it’s even harder because few trust the politicians trying to pour it down their throats. And a wave of corruption scandals that threaten to topple even the president could water down, if not sink, any cure.
President Michel Temer finds himself in a dilemma: He needs the economic reforms to boost his credibility — and perhaps even to avoid being ousted over a flurry of corruption allegations. But his credibility and that of his allies is so low that few Brazilians trust them to do what’s necessary to expand the job market and get people back to work.
Temer’s future is unclear
Congress — and action on the reforms — has all but come to a halt in recent weeks after a recording emerged in which Temer apparently endorses the payment of hush money to a former lawmaker imprisoned on money laundering and corruption charges. He has also been accused of accepting bribes. He denies wrongdoing, but he could soon face formal charges.
The country’s political and business class has been distracted, when not terrified, by a stream of revelations about bribery, kickbacks and general corruption centered on the national oil company, Petrobras, that has led to the jailing of dozens of the country’s elite. The politicians also face an impending deadline: next year’s October elections.
“The only thing that appears certain is that the reform agenda has been compromised,” said Silvio Campos Neto, an economist at Tendencias, a Sao Paulo-based consultancy. “The survival of this government is uncertain, and this has a negative impact on the resumption of investments.”
Reforms are a must
Business leaders and top economists argue that reforms are needed to convince investors to start pouring money again into Latin America’s largest economy, which is tentatively emerging from a deep recession.
They’ve been backing Temer’s proposed reforms that would lengthen the legal work day, let agreements negotiated between employees and bosses override some labor laws and allow companies to outsource more work and hire temporary workers for longer — potentially reducing the number of jobs with full benefits.
Temer also wants workers to contribute longer before they receive pension benefits. Many public workers in Brazil now can retire at age 54 with nearly full benefits. The reforms would set a minimum retirement age for the first time in Brazil, at 65 for men and 62 for women.
Approval rating under 10 percent
The proposed cuts are one reason Temer’s approval rating is below 10 percent in many polls, giving him no political leverage beyond the doors of congress, where his nervous allies hold a majority.
Unions staged an April 28 general strike that brought much of the country to a halt, and they promise more action.
If Temer doesn’t listen, “we will once again stop Brazil and then maybe Brasilia will hear the voice of the people,” said Joao Cayres, director of the Central Workers Union, which represents over 7 million people.
Business-minded economists argue that current labor laws discourage hiring. And the generous benefits for retirees are taking an increasing chunk of the country’s gross domestic product.
“The economy won’t collapse if Congress fails to approve the reforms, but its recovery will be slow and full of uncertainty,” said Ricardo Ribeiro, of Sao Paulo’s MCM Consultancy.
Temer won’t step down
Temer, who denies wrongdoing, argues he can still deliver the reforms.
At a meeting of business leaders on May 30, he insisted the economy was “on the right track” and promised to leave “the house in order” for the next president.
Two days later, he got a rare piece of good news: The country’s gross domestic product expanded by 1 percent in the first quarter of this year as compared to the last quarter of 2016 thanks in part to bumper harvests of soy and corn.
It was the first time GDP had grown after eight consecutive quarters of contraction, ending Brazil’s worst recession in decades. The economy has been dragged down in large part by a slump in global prices for its commodities.
Ruling favors Temer
Temer also notched a victory last week when Brazil’s top electoral court voted narrowly to reject allegations of illegal financing in the 2014 presidential campaign. He could have been ousted if it had ruled otherwise.
Risk consultancy Eurasia said Temer’s breaks wouldn’t be enough to get the existing pension reform measure through. “A stripped-down version of it is likely, although even then close to a toss-up,” wrote Christopher Garman, head of Brazil analysis for the group.
Some 14 million Brazilians are unemployed, or 13.7 percent of the workforce, up from 10.9 percent at the same period last year.
Thousands of public workers are not being paid on time, or at all. Among them are the chorus, orchestra and ballet at the Municipal Theatre of Rio de Janeiro. They plan to ask theater-goers for donations of canned food and household goods as they enter for the season-opening opera “Carmina Burana.”
Ballet dancer has backup plan
Renata Gouveia, a 19-year-veteran ballet dancer at the company, spends her nights making truffles to sell and is designing and selling her own dancewear.
“Out of something terrible, I’m trying to take out the positive, working in things I never saw myself doing,” she said.
“Talk that the economy is improving is “a joke,” said Jose Augusto, a 53-year-old handyman who came to the Ministry of Labor in Rio de Janeiro recently looking for work. “In order to hit the restart button, Brazil needs to employ its workers first. We are millions.”
“Our politicians are shameless thieves,?” added Augusto. “Everything’s rotten, starting with the president and all of the congressmen.”