In six months time the world’s biggest sporting event will get underway in Rio de Janeiro. Here, Jules Boykoff, author of “Power Games: A Political History of the Olympics” takes a look at the winners and losers in the race for financial, rather than Olympic, gold.

By Jules Boykoff
Rio de Janeiro and Portland, Oregon

When Brazilian President Dilma Rousseff appeared at the Rio 2016 Organizing Committee headquarters brandishing a plaque with her “Ten Commandments of the Rio 2016 Games” – a list of social legacy-oriented good intentions – in November, the cameras dutifully snapped and flashed. The plaque was a gift from Eduardo Paes, the beer-quaffing, English-speaking, mediagenic mayor of Rio, a politician well versed in the art of the photo-op. But with the Games opening in only six months, many of those “commandments” now ring painfully hollow.

This might make Rousseff and Paes Olympic sinners. But as the Games approach, there are also real winners: well-positioned real-estate moguls, construction magnates, and perhaps Paes himself. Meanwhile, ordinary Rio residents are left with only shattered promises, with some even being forcibly displaced to make way for the Games.

These days, very few Cariocas believe the Olympic hype. In 2011, 63% in Rio thought that sports mega-events like the Olympics and 2014 World Cup would bring the city great benefits. By the end of 2015, only 27% shared that illusion.

As with much Olympics-induced public relations, the “10 Commandments” ripple with vapid prattle — one vows to “deliver a better city after the Games,” whatever that means. But some of the promises are quite specific, such as “use private money for the majority of the costs.”

This is relevant because in recent years the Olympics have been unmasked as a fiscal boondoggle, despite five-ring honchos in Rio asserting at every opportunity that taxpayer reais will make up less than half of the overall costs of the Games, with private interests paying the rest. Mayor Paes unswervingly repeats the assertion that private sources are paying for two thirds of the Rio Olympics bill.

But this statistic is extremely misleading. It fails to consider the quiet ways that Rio 2016 shifts public resources into private hands, ginning up large profits for well-connected impresarios with connections.

For starters, Rio 2016 brings enormous tax breaks. One study found that Olympic tax exemptions would be around four times higher than those of the World Cup, where tax breaks were nearly $250 million. In addition, public banks in Brazil are taking on speculative business risks to backstop Olympic projects. Also, local authorities have used the Olympics as a smokescreen to bestow valuable public land to developers at bargain-basement prices.

Nowhere has the transfer of public wealth into private hands been more brazen than in the construction of the Rio 2016 golf course. The Rio Olympics mark the return of golf to the Games after a 112-year hiatus. As was touted in Rio’s original Olympic bid, the metropolis already has two elite golf courses that have staged major tournaments. One of these could have been renovated to meet Olympic standards.

But in an audacious maneuver Mayor Paes decided to locate the golf closer to the Olympic complex in Barra da Tijuca, a wealthy western suburb, even if that meant plunking the course inside the Marapendi Nature Reserve, home to numerous threatened species.

In doing so, Paes teed up a staggering deal for billionaire developer Pasquale Mauro. As long as Mauro paid the bill for the golf course — between $20 and $30 million — he’d also win a contract to build 140 luxury apartments around it.

While the mayor’s office has pointed out the benefits of no public money being used in the construction of the site, these units start at $2 million, with penthouse condominiums pushing upwards of $6 million. It doesn’t take a math whiz to calculate the value of this multi-million dollar sweetheart deal, gift-wrapped by City Hall.

If the Olympics are all about real estate, Exhibit B has to be the Olympic Village. Built by Brazilian construction behemoth Carvalho Hosken, the Village will be converted after the Games into a luxury-housing complex called “Ilha Pura” (“Pure Island”). But Ilha Pura isn’t even an actual, geophysical island.  Carlos Carvalho — founder of Carvalho Hosken and campaign donor to Mayor Paes — explained to The Guardian that the name in fact referred to a “social island,” saying that he wanted to create “a city of the elite, of good taste…For this reason, it needed to be top class housing, not housing for the poor.”

But weren’t Rio’s poor supposed to benefit from the Games? One ‘commandment’ vowed to “Prioritize the neediest areas and the poorest part of the population.” But Rio authorities are acting as if “prioritize” means “prioritize for eviction.”

Since the International Olympic Committee awarded Rio the Games back in 2009, around 77,000 Cariocas have been displaced. “The number is likely much higher, since these are official statistics that traditionally undercount favela residents in all aspects of data collection, much less eviction,” Theresa Williamson, founder of Catalytic Communities, a Rio-based NGO that monitors human-rights issues in favelas, told From Brazil.

“Without the pretext of the Olympic deadline, very few of the evictions undertaken by the Paes administration would have been possible,” she added. “Thanks to the state of exception created by the Games, a small, insular group of people close to the mayor have been making broad decisions during the pre-Olympic period.”

Paes’ office has denied any wrongdoing. “City Hall does not use the instrument of compulsory removal, when families are evicted without prior knowledge or a transition process, and new housing is not offered. In any situation where people have to leave their homes, they only leave with the guarantee of a new home or compensation,” it said in a statement last August.

The experiences of one community, however, tell a rather different story. Vila Autódromo, a small, working-class favela on the edge of the Olympic Park, has found itself in front of the Olympic steamroller. As Rio stretched westward in the 1990s, Mayor Paes, then a young deputy mayor of Barra da Tijuca, alleged the neighborhood was causing environmental and aesthetic damage, and required demolition. He has since led the charge to expel every last resident of Vila Autódromo. In June 2015, efforts by the police to forcibly evict residents even turned violent.

Recently the psychological seesaw has verged on psychological warfare. Authorities have cut the favela’s water and electricity. Residents have experienced out-of-the-blue “lightning evictions” carried out by the Municipal Guard. Even the Polícia de Choque (Rio’s heavily armed and armoured shock troops) have played a part, intimidating locals and erecting a wall so obtrusive it would make Donald Trump proud. Meanwhile, on the other side of fence, Rio Mais, the construction consortium building the Olympic Park, cranks away.

“The Municipal Guard has protected the interests of the Rio Mais consortium against the interests of the population,” Larissa Lacerda, an organizer with the Popular Committee for the World Cup and Olympics in Rio de Janeiro who has worked closely with residents in Vila Autódromo, told From Brazil.

Although Vila Autódromo has been decimated, some families have refused financial compensation and are determined to stay in their homes. “Cruelty in Vila Autódromo has increased day by day, with City Hall doing everything it can to make life there unbearable. Yet a group of residents continues the resistance,” Lacerda explained.

In late November, I attended a cultural festival in Vila Autódromo that doubled as a solidarity rally. A large group —comprised of residents as well as busloads of community allies who traveled from other parts of Rio — assembled at the community’s cultural center, for music, information-sharing, food, and fun.

But even amid the good cheer, latent frustration bubbled up. Throughout Vila Autódromo slogans — photos of which are posted here — were scrawled in spray paint on the standing walls of demolished homes and on the white wall separating the community from the Olympic zone.

Wending through the rubble afforded an appreciation of the community’s grit and creativity in the face of peril. Someone had written “Paes Sem Amor” (“Paes Without Love”) on the wall that separates the community from the Olympic construction zone: a play on the phrase “Paz e Amor” (“Peace and Love”). Another took aim at a certain construction baron with a penchant for social stratification: “Carlos Carvalho, Não Somos Pobre/Você Sim é Pobre” (“We Are Not Poor/Rather, You Are Poor”).

But the predominant slogan around the favela was “Lava Jato Olímpico,” a reference to the widespread corruption scandal gripping Brazil’s political class by the gullet. The fiasco has, quite understandably, gobbled up the media’s collective attention. One side effect is that Operação Lava Jato has deflected attention from the Olympic build-up and all its deficiencies.

In a way, the double-whammy of political and economic crisis has been a blessing for Olympic organizers, allowing their logistical hiccups to fly under the public radar. But as the Games draw closer, more people are pointing out the stark fact that billions are being spent on the Olympics at the same time as social services in Rio are being slashed. Public spending reveals priorities and values. With the Rio Olympics, it is not hard to see who is being prioritized and valued and who is not.

“Favelas are not always a problem. Favelas can sometimes really be a solution, if you deal with them, if you put public policy inside favelas,” Mayor Paes explained in a slick Ted Talk in 2012. One such “public policy” was Morar Carioca, an ambitious favela upgrade program designed to bring basic infrastructure like paved roads, sewer systems, and improved electricity lines.

In 2010, Paes said that thanks to “Olympic inspiration” the Morar Carioca program would be a lasting legacy of Rio 2016. But by 2014, the program had stagnated and Paes had made a political U-turn, asserting Morar Carioca had absolutely nothing to do with Olympic legacy. The original collaborative spirit of the program has vanished, even if the Morar Carioca label is occasionally trotted out and pinned to public works projects.

If Rio 2016 runs smoothly, Eduardo Paes may be able use his platform as five-ring kingpin to catapult to higher office. Eduardo Cunha, the scandal-wracked Speaker of the lower house of Congress currently being investigated for having millions of dollars reportedly squirreled away in Swiss bank accounts, has anointed Paes as his favored candidate for the 2018 Brazilian presidential election.

The Olympic Games inevitably feature winners and losers on the track, in the pool, and on the velodrome. But Rio 2016 Olympic luminaries vowed to make ordinary Cariocas into winners as well. “Leave a legacy for the entire population of the city,” chirps one of the commandments. With the Games only six months away, this hopeful boast reads like gripping fiction of the cruelest sort.

By James Young
Belo Horizonte

Working at the Car Wash:

In 2015 the sheafs of stodgy political news that take up the front sections of most Brazilian broadsheets finally contained something to interest ordinary readers, as the Federal Police’s Operação Lava Jato (Operation Car Wash) investigation into corruption at giant state-controlled oil company Petrobras dominated the headlines.

The probe into the billion dollar bribes racket has seen the arrest of top executives from a number of Brazil’s leading construction companies, along with several major political figures, including the former treasurer of the governing Worker’s Party, João Vaccari Neto. It has also made a household name of the scheme’s bagman turned informant Alberto Youssef, and earned Newton Ishii, known as O Japa or “The Jap”, a police officer present at many of the arrests, his own carnaval theme tune.

Despite the damage wreaked upon Petrobras and an already reeling economy, many observers have suggested that by bringing down senior business leaders and crooked politicians Operation Car Wash represents proof that Brazil has finally sickened of its seemingly ingrained culture of impunity, and also demonstrates the healthiness of the country’s separation of powers, plus the strength of its judiciary – Lava Jato has brought about the first ever arrest of a sitting Brazilian senator, Delcídio do Amaral.

Cynics, however, would point out that much the same was said around the time of Brazil’s last enormous corruption scandal, 2005/2006’s Mensalão (“Big Monthly Payment”) swindle (and the enormous corruption scandal before that, and the one before that…), and suggest that it will take decades to root out the institutionalised culture of graft that riddles the country’s political framework.  

Protest Songs:

If things were bad in Brazil in 2015, then at least there was no shortage of people willing to speak out against them.  Many of the year’s demonstrations had an anti-government theme – from the panelaço (pot-banging) demonstrations that echoed from the balconies of apartment buildings in August, to the hundreds of thousands that took to the streets in the same month to call for impeachment, an end to corruption, and in some disturbing cases, military intervention.

Critics, meanwhile, dismissed such protesters, who in many cases were drawn from the better-off sections of Brazilian society, as merely reflecting upper middle class self-interest. In response, pro-government supporters took to the streets in smaller, but still significant, numbers in December.

Perhaps more encouraging than such partisan affairs was the #NãoFechaMinhaEscola (“Don’t Close My School”) protest movement in São Paulo, where thousands of students occupied their threatened schools and eventually forced the state government to suspend an educational reform programme that would have meant the closure of hundreds of learning institutions.

There was also what at least one article described as an embryonic “Women’s Spring” movement – a series of public actions in support of women’s rights, built around opposition to proposed law changes that would further hamper Brazil’s already extremely limited access to abortion.

Further highlighting the wrongs of the country’s often unpleasant culture of machismo was the online #MeuPrimeiroAssedio (“My First Harassment”) campaign, where, following the posting of a number of lewd comments about a 12-year-old female contestant on Brazil’s MasterChef Junior TV show, tens of thousands of Brazilian women used social media to recount the first time they had suffered sexual harassment.

Fear and loathing on the internet (and everywhere else):

If social media has allowed many of Brazil’s previously disenfranchised groups to find their voices, it has also given other sectors of society space to share the rather less edifying contents of their minds, and 2015 saw a number of incidents of online racism. Comments such as “I’ll pay you with a banana” and “lend me your hair so I can wash the dishes” were left on the Facebook page of black actress Taís Araújo in November, while TV journalist Maria Julia Coutinho suffered similar abuse in May.

Imbecilic TV comedy show Pânico Na Band, meanwhile, briefly thought it would be acceptable to feature a character known only as The African, played by a “blacked-up” white actor, who spoke only in grunts and shrieks and acted in what the show’s creators appeared to believe constitutes typical “African” behaviour – scratching at parts of his body, tearing at plants and leaves and performing a dance of thanks for the judges of a cooking contest.

Away from the headlines, such high-profile instances of prejudice reflected the reality of life for millions of black and working class Brazilians. The country’s social divisions came to the fore once again in September when, following a number of mob robberies on the city’s beaches, Rio de Janeiro police instigated searches of public buses running from the poorer northern suburbs to the wealthier seafront districts of Zona Sul.

At the same time, local residents set up vigilante groups to deal with the threat. “We’re looking for kids in cheap flip-flops, who look like they haven’t got R$1 in their pockets,” said one of the brave urban warriors. “It’s obvious that they’re here to steal,” said a shop worker from Copacabana. “If they want terror, we’ll give them terror. It’s self-defence.”

The Ballad of Dilma…

The storm clouds of impeachment have arguably been building in Brazil since President Dilma Rousseff narrowly clinched a second term in office back in October 2014, following a surly and spiteful contest. At the time, opposition leader Aécio Neves claimed he had lost not to a political rival but to a “criminal organisation”, while his PSDB party muttered darkly about being the victims of electoral fraud. Rousseff’s foes have been gunning for her and her governing Worker’s Party ever since.

The argument for impeachment often seems to follow one of four strands: (a) we don’t like Dilma very much (Rousseff’s approval rating sank as low as 8% in August) (b) Dilma used to be president of Petrobras (see Operation Car Wash, above) and so must be a crook (c) we don’t like Dilma very much and (d) the government’s pedaladas fiscais, or financial manoeuvres, where transfers to banks responsible for making a number of welfare programme payments are deliberately delayed, making the overall financial situation look rosier (or at least less terrible) than it actually is. Such manoeuvres, say those calling for impeachment, are illegal.

The pro-impeachment movement believe the pedaladas fiscais represent their smoking gun, and proceedings against Rousseff are now underway. The government, meanwhile, say the pedaladas have been common practice since 2000, when the opposition PSDB was in power, while Brazilians who oppose impeachment describe the process as a coup. No one knows how this particular novela will end, but two things are guaranteed – it won’t be short, and it won’t be pretty.

…and Eddie

No pantomime would be complete without a villain, and there have been few shadier politicians in Brazil in 2015 than Eduardo Cunha, dubbed the country’s Frank Underwood by a number of commentators. While Cunha has not (yet) pushed a reporter under a speeding subway train, his skulduggery in other areas seems unbounded.

“In all my time in politics, he’s the most Machiavellian figure,” Ivan Valente, the experienced president of the left wing opposition party PSOL, told The Guardian in an interview in October. “Cunha is a politician who is opportunistic, intelligent, ambitious and corrupt.”

Since being elected Speaker of the Lower House in January, Cunha – whose PMDB party remain, officially at least, Rousseff’s allies – has made it his mission to add to the President’s woes at every turn, leading campaigns to overturn government sponsored legislation or pushing through his own, usually government-unfriendly, bills.

At the same time, Cunha has been accused of taking millions of dollars in bribes as part of the Petrobras swindle, and of stashing the money in Swiss bank accounts. At least his alleged machinations have lent the often deadening weight of the recent corruption sagas a touch of glamour – Cunha’s wife reportedly used some of her husband’s ill-gotten gains to pay for lessons at Nick Bollettieri’s exclusive tennis academy in Florida.

At the same time, he has attempted to use his authority to accept or reject impeachment petitions to curry favour with both the opposition and the government.

Cunha, an ultra-conservative evangelical Christian who supports the creation of a “Heterosexual Pride Day” in response to what he sees as a growing “gay ideology” in Brazilian society, finally pulled the trigger to initiate impeachment proceedings mere hours after Worker’s Party deputies announced they would support an Ethics Committee investigation into his denials of the existence of the (alleged) Swiss loot.

Despite recently having had to endure the indignity of an early morning police raid at his home, Cunha snorts at suggestions he might step down, as well as the Frank Underwood comparisons. “He’s a thief, a murderer, and a homosexual,” he is reported to have said, “and I’m not”.

Sweet River No More

One of the most distressing sights of the year was the devastated landscape around the town of Mariana in the state of Minas Gerais after millions of gallons of mining waste burst free from a collapsed tailings dam.

At least 15 people are known to have died in the flood, and the ensuing environmental damage is likely to be catastrophic, with the sludge now having flowed down the Rio Doce (“Sweet River”) to reach Brazil’s Atlantic coast. “This is a permanent blow. The cost is irreparable. A lot of life forms are never coming back,” Professor Carlos Machado, a researcher at the Oswaldo Cruz Foundation in Rio de Janeiro, told the LA Times in December.

Describing the dam burst as a natural disaster is misleading, however. This is a tragedy with human hand-prints all over it, with the aftermath revealing both the potential negligence of the mine’s operator, Samarco (a joint venture between the Anglo-Australian mining company BHP Billiton and the Brazilian firm Vale), and the failings of Brazil’s “outdated mining code and decrepit regulatory system”. According to an article in The Daily Telegraph, only 400 of Brazil’s 15,000 mining dams were inspected in 2014.

The environmental news was little better elsewhere – a critical water shortage saw São Paulo suffer long periods of water rationing as the south east of Brazil underwent its worse drought in 80 years, while almost a thousand towns and cities in the dry inland regions of the north east of the country declared a state of emergency because of a lack of water.

The Killing Fields

Police killings in Brazil are hardly a recent development – according to a report by the São Paulo based Brazilian Forum on Public Safety there were 11,197 homicides carried out by police between 2009 and 2013, a rate of six a day. Even so – perhaps it was down to greater media awareness or the ubiquitous presence of cell phones, useful for filming or photographing wrongdoing – the relentless stream of negative headlines involving Brazil’s police forces this year felt unprecedented.

From 10-year-old Eduardo de Jesus Ferreira, who was shot and killed by police in the Complexo do Alemão favela in April (his mother claimed that a policeman standing over her child’s body told her “I might as well kill you, just as I killed your son, because I killed a bandit’s son”) to the five young men slaughtered when their car was sprayed with bullets in the Lagartixa community in the north of the city in November, Rio de Janeiro was the scene of many of the police killings.

The September murder of four young men outside a pizza restaurant in Carapicuíba in Greater São Paulo (a police officer, who claimed the men had mugged his wife, was later arrested and accused of the crimes), and the death of 20-year-old Alisson Campos da Silva, shot and killed by police as he reached for his cell phone – which the officer in question believed was a gun – in Recife earlier this month, shows that Brazil’s police murders, whether in the form of trigger happy cops on duty or extra-curricular vigilante killings, and which invariably seem to involve young working class black or dark-skinned men – are a national, not a local, disgrace.

As the writer and journalist Xico Sá put it when writing about such young men in an essay inspired by the footballer Flávio Caça-Rato (Flávio the Rat Catcher), who grew up in poverty in Recife – “some, like Flávio, escape, thanks to football, funk or rap, but most are lost along the way, little Rat Catchers doomed to a life amidst the human refuse or, worse, ended by the bullets (nothing stray about them) of the police – almost always dead by the time they are 30.”

As the Rio Olympics draw closer, organizers are cutting costs – but it may have more to do with Brazil’s crumbling economy than IOC initiatives or financial good governance. Jules Boykoff, author of “Power Games: A Political History of the Olympics” explains.  

By Jules Boykoff
Rio de Janeiro

Back in 2009, when the International Olympic Committee awarded the 2016 Summer Olympics to Rio de Janeiro, Brazil’s economy was riding high. The Rio 2016 bid book boasted of “financial certainty” and assured IOC bigwigs that Brazil’s “proven economic policies” would “provide a solid economic foundation to support Games delivery.” Later that year The Economist published a cover featuring the iconic Cristo Redentor statue blasting off like an unstoppable rocket.

But no amount of Photoshop trickery can get around the fact that since then, Brazil’s economy has tanked. Despite those “proven economic policies,” the country’s financial tectonics have shifted mightily. In the past year alone, the real has lost 70 percent of its value against the dollar. Inflation has spiked to close to 10 percent.

At the same time, President Dilma Rousseff’s popularity ratings have plummeted into single digits and now hover around 9 percent. The scandal-wracked political system seems dangerously close to implosion, with impeachment being bandied about the halls of political power and the Frank Underwood-esque speaker of the lower house, Eduardo Cunha, threatened with removal on corruption charges. This is the worst recession the country has suffered in 25 years, and economists expect it to extend through the Rio 2016 Games.

In the Olympic world, the tectonic plates have also moved since Rio won the Games. In December 2014, the IOC unanimously passed a slate of recommendations called “Olympic Agenda 2020.” This was a direct response to the fact that the Olympic movement itself had hit a low point. To host the 2014 Sochi Winter Olympics, Russians spent $51 billion, a gob-smacking total that surpassed the costs of all the previous Winter Olympics combined.

In addition to that boondoggle, bidder interest in the 2022 Winter Games was wilting, with only two candidates still in the race — Beijing, China and Almaty, Kazakhstan — both of them anti-democratic, repressive states. IOC President Thomas Bach needed to take urgent action — or at least appear to do so. After all, a Tupac-style hologram of reform might just do the trick.

Enter “Olympic Agenda 2020,” a set of nebulous recommendations, rather than full-force policies. The recommendations spoke of the obvious need to halt runaway spending. Host cities were encouraged to use existing arenas and would now be allowed to hold Olympic events outside city limits.

The goal was to reduce the number of venues destined to become what sports mega-event mavens call “white elephants”: hulking, underused structures that drain city coffers through pricey maintenance costs long after the sporting spectacle leaves town.

The IOC also streamlined the bidding process, reducing it from a forest to a mere meadow of paperwork. Overall, while Agenda 2020 is awash with jargon about “synergies” and “stakeholders,” the wider goal of reducing host-city costs makes sense.

In 2009, when Rio bid jockeys floated their plan, extravagance was the order of the day. Olympic “gigantism” — high-priced five-ring spending sprees on supersized events — reigned supreme. President Bach hyped Rio’s mega-plan at a glitzy gala one year before the Games were to begin: “This will be the biggest urban redevelopment project since the Barcelona 1992 Olympic Games.”

Indeed, Rio organizers plotted a complex path, with four venue pods in different parts of the city and a gaggle of brand-new arenas and structures built exclusively for the Games.

Rio Mayor Eduardo Paes used the Olympics to spur development in Barra da Tijuca, Rio’s relatively affluent western suburb and a kaleidoscopic consumer paradise. Real estate tycoons — many of whom helped fund Paes’ re-election campaign in 2012 — grinned from ear to ear. Brazilian property baron Carlos Carvalho revealed to The Guardian that in Barra he hoped to forge “a city of the elite, of good taste.”

For this to happen, Mayor Paes needed to bash down the barriers to profit. This included clearing longstanding communities such as Vila Autodrómo, a favela perched on the edge of the Olympic blueprints where residents have put up a spirited fight that continues today.

After all, as Carvalho saw it, “the new city” in Barra da Tijuca was meant to be “luxury housing, not housing for the poor.” According to one survey, since Rio was handed the Olympics in 2009, some 60,000 favela residents have been displaced due to urban interventions or because they live in supposed “zones of risk.”

But even with a bevy of building barons on their team, Mayor Paes and the Rio 2016 Olympic Organizing Committee struggled to keep construction moving apace. Back in 2014, IOC Vice-President John Coates rattled Rio’s cage when he declared that organizers’ preparations were “the worst I have experienced” and even “worse than Athens” where construction for the 2004 Summer Games ran notoriously behind schedule.

In recent months, however, Rio 2016 appears to have rallied. The venues are only slightly delayed, and the gap appears closeable. Even so, there’s a borderline iron law of Olympic development: the closer the deadline, the higher the costs.

So, what does the IOC’s “Agenda 2020” have to do with Rio 2016? Turns out, not much. To be sure, Agenda 2020 recommendations, if converted into actual toothy reforms, could have benefited the Rio Games by limiting the number of freshly built venues.

But as Rio 2016 was chosen in 2009, its organizers are not bound by Agenda 2020 recommendations. That, however, hasn’t stopped the event’s luminaries from making strategic use of the program’s loose lingo. When in doubt, they trot it out.

For the Rio 2016 Organizing Committee, Agenda 2020 has become a strategic shield used selectively to deflect criticism and to defend its deficiencies. When construction delays forced Rio 2016 officials to consider shifting preliminary water polo matches from the Julio Delamare Aquatic Park to the main Olympic Park’s Maria Lenk Aquatic Center, they claimed this was simply in tune with the Agenda 2020 rationale. A spokesperson said, “One of the pillars of Rio 2016 is to deliver games that are economically sustainable and that is in line with Agenda 2020 framework.”

When the international swimming federation complained that Rio’s Olympic aquatic center was substandard compared to London 2012, the Rio Organizing Committee’s retort was that building a smaller facility simply chimed with Agenda 2020 sustainability principles. Rio 2016 issued a statement asserting, “everyone knows that the goal of Rio is to deliver sustainable Games in accordance with Agenda 2020.”

Then again, forging tactical connections to a phantom document is better than insulting the world’s top athletes. Recently, Rio Organizing Committee President Carlos Nuzman did just that. During an Olympic test-event for BMX racing in October, a brouhaha broke out when participants blasted the track as too dangerous.

Citing safety concerns, athletes banded together and unanimously refused to ride. “We shouldn’t have to race on such sub-standard tracks,” British BMX world champion Liam Phillips posted on social media. Nuzman responded with a glib dismissal. “Whoever wanted to race, should have raced,” he said. “Whoever chose not to race…I think they should look to be in another sport.”

In light of Brazil’s economic woes, Rio 2016 organizers recently announced a 30 percent cutback to the Games’ operating budget. Fernando Meirelles, the Brazilian filmmaker who is overseeing the Olympic opening ceremony, revealed, “Since we joined the project the money has been cut, cut, cut.” He added, “We’re in a crisis and there are better places to put money in Brazil than just the opening ceremony.”

Rio 2016 will also replace a number of sturdier, more permanent structures with tents, the ticketing system will be revamped to cut costs, and the volunteer program will be slimmed. Organizers also recently said that the Olympic Village will not be equipped with fixed air-conditioning units, with athletes being forced to rent portable devices instead.

Rio 2016 Communications Director Mario Andrada told the BBC, “People get upset about luxury and excess, we have to tighten our belts.” But the projects listed by the BBC as on the fiscal chopping block did not include the “luxury and excess” that IOC members have come to expect. Will such cost-trimming apply to the Olympic Brahmins who will jet into Rio, quaff fine wine, and luxuriate in five-star hotels?

The IOC was conspicuously mute about the budget cuts, although it did deliver a statement to Inside the Games that was a blend of the vanilla and telltale: “We will discuss this topic over the next few weeks with the Rio team, as we continue to look at how the implementation of Olympic Agenda 2020 can help Rio to make its Games as economically sustainable as possible.”

The statement was in fact revealing, capturing as it does precisely what is wrong about the idea of over-hyping the IOC’s moves toward reform. While the idea behind the Olympic Agenda 2020 program has potential, the reality is rather more PR masterstroke than genuine change. Another Tupac hologram—and this one is wearing Olympic laurels.

While much has been made of Brazil’s economic downturn, a toxic political climate is equally responsible for the current woes of President Dilma Rousseff and her government. Mauricio Savarese looks at the complex backdrop to the crisis.

By Mauricio Savarese
São Paulo

There is no easy explanation as to why, just under a year after being reelected by a narrow margin, President Dilma Rousseff runs the risk of not completing her term in office. It took respected consultancy firm Eurasia months, for example, to weigh up all the factors and raise the chances of her resigning or being impeached from 30% to 40%. But one thing is easy to predict: whatever the outcome, the current climate of polarization is here for a while – perhaps even until after the next elections.

Although opposition militants argue that Rousseff has only herself to blame for her troubles, pro-government forces place the blame on kingmaker party the PMDB, and defeated PSDB presidential candidate Aécio Neves. Leftist groups continue to defend Rousseff’s mandate but oppose her fiscal policies. While it is difficult to know where the saga will end, there are clear reasons behind Brazil’s political crisis.

The aggressive, toxic campaigns waged by both candidates in last year’s elections are as good a place to start as any. Rousseff came close to defeat against Neves, who himself only made it to the second round run-off on the final straight – environmentalist Marina Silva had been running second in the polls until then. And the contest was only so tight in the first place because of a sluggish economy and the emergence of a new wave of scandals involving key members of the government. In 2013 most bets had been on Rousseff’s reelection.

After a narrow defeat, Neves barely recognized his opponent’s victory in his concession speech. Such a tight margin, the closest in Brazilian history, had two immediate effects: a smaller mandate for the winner and more sore loser griping from the other side. Impeachment talk emerged right after Rousseff was proclaimed the victor, and today it often feels as though the election never ended.

After a leftist-sounding campaign, the president turned her attention to the financial markets in a manner that shocked many of her voters. After much indecision, she picked American-trained Bradesco Bank economist Joaquim Levy to be her Finance Minister, and appointed a number of other conservative ministers, some of whom would have been more comfortable in a Neves cabinet. Before the end of the year she had managed to lose touch with her base, while at the same time failing to win over her adversaries.

Since then the crisis has all been about the government’s controversial ally, the PMDB. The centrist party, which has itself been associated with scandal more than a few times in the past, was never 100% on Rousseff’s side, and today it would be a push to argue that even 50% of its deputies and senators are still with the president. During the campaign some of the party’s key figures were already placing their bets on Neves, and the division has remained even after the president’s victory. Opposition forces were strong enough to elect her main PMDB adversary, congressman Eduardo Cunha, to the role of Speaker of the Lower House until February 2017.

Rousseff believed that her decisions would restore the credibility she had lost in her first term thanks to growing spending and the use of backpedaling, a form of delaying repayments to lenders who had provided money to pay for welfare programs, making the country’s books appear more robust than was actually the case – a breach of fiscal responsibility laws say the opposition, but common accounting practice according to the government.

But in fact those unpopular steps, which contradicted profoundly with the tone of Rousseff’s campaign, were eating away at her popularity. The Lower House, led by Cunha, began to think of ways to put further pressure on an already unpopular president.

The lack of enthusiasm for the new administration had been evident since January 1st, when Rousseff’s somewhat flat inauguration was attended by less than 5,000 people – around 10 times fewer than at the start of her first term. Rousseff picked a number of ministers that patently had few qualifications for their positions, solely to maintain the support of their parties in Congress. Cunha’s election as speaker may have been the first sign that the strategy had failed, but others have followed.

Despite being involved in multiple scandals, including the Petrobras investigation, Cunha is a wily strategist. With the speakership he had the power to define the Lower House voting schedule, and to choose which congressional inquiries would move forward. This latter power includes what is described as “an atomic bomb” in Brasilia: in other words, whether or not to allow an impeachment process against the president to progress.

When Rousseff’s popularity sunk to single digits, all the opposition, which had been repeatedly stirring up protests against the president, needed was a motive to seek impeachment, and in Cunha they had found a willing ally.

Three possibilities have now emerged. One is to find a direct link between the president and the Petrobras scandal, while another option is for the Superior Electoral Court to strip both her and Vice-President Michel Temer of their positions because of the use of supposedly illegal funds in their election campaign. The third potential outcome, meanwhile, is to accuse Rousseff of breaking fiscal responsibility laws in the form of the aforementioned backpedaling.

All these three possibilities remain in play, but none are conclusive. If proven, they would also result in different outcomes: in the first and the third cases, Temer would take over from Rousseff, although rumors have suggested the vice-president himself may be implicated in the Petrobras scandal – something he has already denied.

If both Rousseff and Temer go, runner-up Neves would take over, with even those in opposition recognizing that such a decision by the Superior Electoral Court would not necessarily give them the legitimacy they would need to govern. Since the restoration of democracy in Brazil in 1985, impeachment charges have been brought only against President Fernando Collor de Mello, in 1992, when he was directly linked to corruption scandals that had emerged during his term, showing the difference between the two cases.

Rousseff has relied on a number of factors to keep her job. The first is her turbulent yet enduring relationship with former president Luiz Inácio Lula da Silva, the main power behind the Worker’s Party. She also hopes to maintain her alliance with the president of the Senate, Renan Calheiros, who could also yet be implicated in the Petrobras scandal. The third is the pragmatism of many business leaders, who think impeachment would represent a major setback for a young democracy.

Further complicating matters is that in the event that impeachment proceedings are instigated in the Lower House, Rousseff may decide to take her case to the Supreme Court. Unlike congressmen, Brazilian supreme court justices have little interest in the polls and nor are they yet much concerned with the investigations of the Petrobras scandal. It appears impossible to tell what the outcome of such an action might be. Brazil is not for beginners, as the songwriter Tom Jobim once memorably said – and the complexities of the current political crisis show that his words are as true now as ever.

Once a symbol of growth and rising confidence, the sprawling suburbs outside Brazil’s urban centers are feeling the pinch as the economy nosedives. And there are few places in the country where it is so obvious how out of touch the bickering politicians in Brasilia are with the realities of daily life.

By James Young
Belo Horizonte

Aside from the humdrum backdrop of harrowing, everyday tragedy, three subjects have dominated the headlines in Brazil in recent months – the enormous Petrobras corruption scandal, the country’s economic downturn, and the political game of thrones being played out on a seemingly infinite loop in the capital of Brasilia.

The narratives inevitably intertwine – as Brazil’s very own Frank Underwood, the speaker of the country’s lower house, Eduardo Cunha, wages war on Dilma Rousseff’s struggling government, the Petrobras investigation appears certain to involve many leading political figures, including now Cunha himself, while the acrid climate of squabbling and corruption, coupled with Rousseff’s toxic approval ratings, torpedoes any attempts to keep a seemingly sinking ship afloat.

Observing such events unfold from afar, however, lends a detached, surreal air to proceedings, like watching an episode of House of Cards with the actors replaced by Rousseff, Cunha, former presidential candidate Aécio Neves and the rest. It is often hard to reconcile the self-serving manoeuvres of such hardened players of the jogo do poder (“the power game”) with the tough reality of life in Brazil’s working class bairros.

One such hard-knock neighbourhood is Jordão, tucked behind the airport in the southern periferia of Recife, and home to around 20,000 people. Divided between the municipal authorities of Recife and neighbouring Jaboatão dos Guararapes, Jordão suffers from the familiar problems of many of Brazil’s lower class neighbourhoods, particularly in the nordeste – an unreliable public transport system, low quality housing, limited accessibility to healthcare and schools, an intermittent electricity and water supply, poor sewerage, and high levels of urban violence.

Meanwhile residents do their best to fill the gaps in the services supplied by the government or city council. Ten years ago sisters Raquel and Rozeli Santos opened the Educandário Amara Maurício primary school in a tiny three room building, as neither Recife nor Jaboatão provided a public school for young children in the immediate area. “For years an up and coming local politician financially supported us,” Raquel told me, “making sure that local people knew all about his generosity. Once he was elected, the donations stopped.”

A new building has been constructed with eight classrooms, big enough for 300 children, and now the school survives (barely) on monthly fees of around U$27 per pupil, not enough to pay the ten teachers, all of whom are from the bairro, much more than the minimum monthly wage of U$240. When I visited the school just over a year ago, the yard was filled with jagged bricks left over from the building work, and there was nowhere for the children to play.

Jordão is often affected by water shortages and power cuts. “Some months the electricity is off for a few hours nearly every day,” said Jessica Santos, Rozeli’s daughter, at the time a teacher at the school.

“It feels like we’re forgotten,” said Raquel. “Recife forgets about us and Jaboatão forgets about us.” Drug addiction is a major problem in the neighbourhood, as is lawlessness. “They killed a young boy a few weeks ago,” Raquel said. “He hit someone’s motorbike, just a scrape. Someone pulled out a gun and shot him.” It is not a rare occurrence. Stories such as those of Klébson Gomes da Costa, the ten year old boy hit by a stray bullet during a shootout between police and traficantes (drug dealers) in May 2013, or Taísa Priscila Rodrigues da Cruz, a 20-year-old drug user who was shot and killed a few months later, are common.

In recent years residents of neighbourhoods such as Jordão have seen considerable improvements in quality of life, due to Brazil’s expanded Bolsa Familia welfare system, an increased minimum salary, and overall economic growth. Two years ago I sat in a scruffy bar and watched what seemed like half the bairro make its way to that essential staple of middle class Brazilian life, a plush new gym. It looked like better times lay ahead.

But now the government is introducing austerity measures and the growth has gone into reverse. According to research institute IBGE, the national unemployment rate last month was 6.9%, the highest June rate since 2010. The same study put the jobless level in Recife at 8.8%, although other surveys are even more negative – the Diario de Pernambuco, the oldest newspaper in South America still in circulation, stated that 12.9% of Recife’s workforce was unemployed in March.

Part of this statistic is Edilson Alves da Silva, a 36-year-old mechanic and factory worker. Edilson lives with his wife Elma and her daughter in a typically cramped Jordão house, with an imposing metal front door protecting a small bedroom, living room and kitchen. Another bedroom has been fashioned from a lean-to by the front entrance, and a tiny bathroom takes up one corner of the kitchen.

For the last eight years Edilson was part of the production line in a factory that makes the tin-foil plates used to hold quentinhas – the take-away lunches that are so popular in Brazil. His and Elma’s salary put the family firmly in the heart of the country’s swelling “new” middle class – Classe C and D, one of the groups that has suffered most during Brazil’s economic troubles.

Last October, just as campaigning in Brazil’s presidential elections entered its final straight, Edilson was made redundant, along with a number of his colleagues. “I think the company saw that the crisis was on the way,” he says. “When I lost my job I thought I’d find another one easily, but it hasn’t turned out that way. I’ve had around 20 interviews, but every time there’s a line of people like me looking for work.”

After working all his life, Edilson says it is difficult to get used to being unemployed. “It’s hard to survive, but at least my wife is working. My redundancy money was gone after three months – I wish the crisis had ended so quickly. Prices keep going up (some reports have put inflation at 8.47% over the last 12 months, but the price of many goods has increased at a considerably faster rate) which means what little money we have doesn’t go far.”

Edilson says he sees the results of Brazil’s economic woes everywhere he goes in Jordão. “There are lots of people standing around in the street, doing nothing, at 10 o’clock in the morning. They’re tired of going out every day delivering their CVs, having interviews, and not getting hired.”

Like many of his countrymen, he is scathing of the politicians’ attempts to solve Brazil’s problems, and their apparently greater interest in the jogo do poder.

“My hopes for the future are in the hands of the vultures in Brasilia,” he says. “The business leaders and politicians are supposed to have the influence and knowledge to find a way out of the situation. Those down below don’t have that option. All we can do is sit and wait.”

I’ve left the bitterness of São Paulo on a brief vacation outside of Brazil, but I wanted to share insights into the country’s current situation from two excellent commentators that generally hold the “pro-market” viewpoint.

The first is from Tony Volpon of Nomura Securities:

Structurally, the end of the commodity boom can now be dated to 2011, one year into [Dilma’s] first term, as Brazil’s terms of trade began to deteriorate and the country began to see a marked economic deterioration.

Though the opposition, often with reason, blames Rousseff’s policies for economic underperformance, these policies were, however inadequate, genuine attempts to respond to a much less supportive external environment.

Unfortunately, it is unlikely that the external factors are going to be better over the next four years; it seems that the years in which all Brazilians could improve their lot in life are over, for now. Choices will have to be made and priorities will have to be set.

President Rousseff will now have to look beyond the class struggle rhetoric of her campaign and show whether she can regain the trust of the south and southeast of the country that voted for the opposition by a 2:1 margin, and is responsible for around 70% or more of the country’s GDP. Without their support there is little chance that Brazil will see investment rates – which at a paltry 17% of GDP are the lowest of any of the major emerging market economies – rise.

For me, three eminently reasonable things stand out here that are intentionally excluded from the hyperbolic partisan rhetoric dominating the country on both sides right now. First, just as the economy under Lula was boosted hugely by the Chinese-led commodities boom, the end of the boom explains most of the economic problems since 2011. Dilma’s very real “interventionist” errors are only one part of this.

Secondly, Dilma wanted and wants conventional economic success. Measures taken since 2011 very often misfired, but to paint her administration as dangerously radical or anti-growth is just campaign rhetoric or noise from the radical fringe.

Third, whether Dilma voters like it or not, we need the confidence and participation of international capital as well as local investors to make this economy grow again. If the PT actually had some kind of a plan to fully nationalize Petrobras, create socialist firms, or massively expand public investment, we might take that plan seriously. They most certainly do not. So despite the excitement on the left at Dilma’s guerrilla campaign themes, the short-term hard truth is that investors must be placated, and soon.

The second comment comes from Helen Joyce, International Editor at The Economist, who served as Brazil Correspondent until the end of 2013.

“I am absolutely sure Aecio’s economic platform was better – for all Brazilians. But when I see the prejudiced comments about stupid or lazy nordestinos sucking the state dry, I understand why so many didn’t turn to him.

Do these people have no idea that (a) a democratic government must seek to govern for all, and (b) that it’s corporate welfare and the vast privileges of Brazil’s elite that are sucking the country dry, not the very modest handouts for the poor??”

The Bolsa Familia program is only 0.5% of Brazil’s GDP. And the election was not only about policy, but ended up being about cultural, class and regional battles.

So, in the short term, our pressing problem is economic. But the long-term problem is much bigger, and it is social.

Photo above is of street vendors outside a new mall in Minas Gerais. All links inserted by me.

Sunday was full of surprises, and most of them dispiriting for the groups that thought they’d made gains during last year’s protests. Here’s the five biggest.

By Mauricio Savarese

1 – Marina Silva out of the run-off

From presidential front-runner to the falling star of Brazil’s politics. The former environment minister was a bad player from the start of her campaign. Not all of her demise is her fault, of course. As usually happens with third way candidates, she preached new politics and became an easy target for the left and right. But her defeat doesn’t have to do only with her rivals: she flip-flopped on gay rights, lost many of the staff that were working with her deceased former running mate Eduardo Campos, avoided openly supporting of conservative politicians, played victim too soon, failed in answering criticisms from Dilma Rousseff and Aécio Neves (who are now heading to the run-off), and failed to make Brazilians more confident about what kind of president she would become. In the end, anti-government voters left her when it became clear Aécio Neves might have a better chance of actually taking down Rousseff.

After getting roughly same vote she did in 2010, it’s hard to see her as a presidential contender again. For now, supporting Neves in the run-off is all that is left for her – and if he loses that will show her political leverage is even smaller than many expected.

2 – Increase in abstention after street protests

Street protests last year suggested new political forces would appear. That was not the case, at least at the ballot box. What was more noticeable was a rejection of candidates in general. The number of Brazilians who chose not to show up (voting here is mandatory), or cast votes for no one reached 29% this year, the highest level since 1998. This is only a small uptick, but it would be impossible to say that street protests re-energized the country politically, at least in the electoral sense.

It is hard to see Dilma Rousseff and Aécio Neves as so exciting to all the voters that went to the streets last year. And those voters are not putting forward any policies that could be embraced by the candidates. If you look at the first round results, June 2013 looks like too much ado for nothing, at least in terms of the ballot box.

As one left-leaning friend in São Paulo put it on Facebook:

“What happens in June
Stays in June.”

Or, here’s some alternate theories from Rio Gringa.

3 – Brazil’s conservative Congress

Preachers, the military, policemen…Brazil’s new Congress is has become more conservative. Almost 40% of the Congressmen are rookies, which makes for the biggest shakeup since 1998. The Worker’s Party suffered a major defeat: they lost 18 seats and will have 70 in 2015. PMDB comes right next, with 66 seats — they had 71. The most voted-for candidates in São Paulo and Rio de Janeiro are extremely conservative politicians Celso Russomano,  Jair Bolsonaro, and Marco Feliciano.  If Dilma Rousseff is elected, that means her reform agenda will be even more difficult to carry out. If Aécio Neves wins, there may be more reforms, but some of them could be very controversial: allowing minors to be tried as adults is one example.

Bolsonaro, above, says that the government supports gay pride marches so that it can tear apart ‘the fabric of society’ and make it easier to control the population. In other charming moments, he has praised Brazil’s military dictatorship.

4 – São Paulo governor Geraldo Alckmin wins easily

There is a water crisis in Brazil’s wealthiest state. There are various corruption allegations about a cartel that operated for years in subway here. São Paulo’s military police provided, with their brutality, the spark to set off the biggest street demonstrations that the country has ever seen. Yet governor Geraldo Alckmin, who could be held accountable for all those events, breezed to re-election. He won in all cities of the state but one.

Depoliticized voters, plus a lack of enthusiasm for a Paulista third way, represented by businessman Paulo Skaf, gave the 2018 presidential hopeful a shockingly easy ride. Some analysts expected him to win – his power in the Paulista countryside is unmatched. But so easily? That was shocking.

5 – PT wins in Minas and Bahia

This was a major blow to Aécio Neves in his home state and a surprising victory in the battleground state of Bahia. The best news for Dilma Rousseff was that the gubernatorial races there ended in the first round. Taking Minas Gerais from Neves’ allies means governing Brazil’s second most important state with a close friend of hers, Fernando Pimentel. Rui Costa’s victory in Bahia keeps in PT hands a state that was on the verge of going to the opposition. None of those two results were expected a few months ago. In Costa’s case, it wasn’t expected a few days ago.

Follow Mauricio Savarese on Twitter

Brazil’s brutal inequality is so ubiquitous that those who live here simply stop noticing it. An unexpected message from abroad serves as a reminder of the topic that is so rarely discussed here, in society, the media, or the current election.

I’ve been living in Brazil for over four years now, which has been incredible in almost every way, including the ways in which I’ve adapted to the local culture. But there’s the bits I don’t like, too. More than anything else, I hate the way I’ve become desensitized to shocking, brutal, and stultifying levels of inequality. I’ve become accustomed to it, as if it were or ever should be normal.

[para ler o texto em Português, clique aqui]

This, most foreigners in Brazil learn quickly enough, is actually one of the required characteristics of being authentically “Brazilian.” True locals understand that extreme inequality is just a fact of life here, and it is bad taste to bring it up or transgress established class boundaries, so much so that an extreme preoccupation with the topic, or wanting to get to know Brazil outside elite circles, are sometimes considered “gringo” things to do. The more I find myself  becoming “local” in this sense (and in this sense only), the more uncomfortable I become.

Recently, a flash of realization came, as they almost never do, via a WhatsApp message, sent to my cell phone from a Brazilian friend visiting my home country for the first time.

From New York:

“Wow, I’m really impressed with the social equality here. Congratulations.”

And then: “Blacks are part of society. They aren’t excluded like they are in Brazil.”

For all intents and metaphorical purposes, these messages caused my head to explode.

I was born and raised in the United States, a country which has many, many, very obvious problems – probably more than Brazil – which are mostly irrelevant here. Apart from our famous propensity to bomb countries, killing hundreds of thousands for no discernible positive outcome, social injustice has always been a major problem of ours. We have one of the worst inequality levels among the world’s developed countries, and it’s clear to me we have a fairly serious race problem, especially when it comes to treatment of our black citizens.

Moreover, on the equality issue, our problem is getting worse, so much so that Obama spoke recently of the need to combat “dangerous and growing inequality.” 

Maybe not every Brazilian would immediately see things they way my friend did when arriving in the US or Europe. But the fact that a resident of Brazil can feel that New York, of all places, is a beacon of social harmony was a shocking reminder of how deep and problematic Brazil’s inequality is.

But of course it shouldn’t have been shocking. When I arrived here, I was constantly taken aback by elements of a culture that often seemed from another time. Two separate doors for apartments (one for the family, one for the help). Upper middle class youth who had never washed their own clothes or bathroom (let alone held down a job before graduating university), and who could casually drop classist or racist remarks – of the kind that would get you permanently expelled from polite society many places elsewhere – as if it were nothing.

But much of this had become normal for me, as I imagine it had long ago for most Brazilians.

Of course, it’s easy enough for me to deal with this violent prejudice, as a white man who arrived from the US and Europe, locations that much of São Paulo’s upper middle class look up to, but where they themselves, ironically, may be considered crude, reactionary, or racist, and with very bad taste.

You could argue, sometimes correctly, that people like me benefit from this prejudice at times, even if we would rather not. But for the Brazilian friends and colleagues who were unlucky enough to be born with African or indigenous features, or to working-class parents, it’s common to be shouted down when they complain of this class system, as if they were either dangerous Bolsheviks or lazy, self-interested quota jumpers.

It is absolutely true that Brazil is one of the few countries in the world to have improved income inequality in the last decade. But, in the pursuit of both social justice and increasing economic productivity, the country still has a very long way to go. If you look at how the election is unfolding, however, you would think that what the country needs is mostly some technocratic fixes, or a candidate who is less tarred by corruption allegations than the others. If you look at the media, you would think that the social advances made since 2003 were already revolutionary and frightening enough, or that there wasn’t much to talk about. Of course, if you pick up any major newspaper here, you may come to the conclusion that they are written by the white upper middle class for the white upper middle class, because they are.

Around the ‘rolezinhos‘ which took place early this year, there was a debate as to whether Brazil is an ‘apartheid‘ society. I think that’s the wrong word, as there is no state sanction for the divisions. Another friend suggested we may have a “caste” system, which I think is closer to being accurate.  It is at least accurate insofar that the following statement is accurate: For a daughter or son of the ‘middle class,’ the idea of showing up at Sunday family lunch and introducing a member of the working class as boyfriend or girlfriend is basically unheard of. Indeed, I’ve met people from both classes who admit they’ve never had a real, substantive conversation with a member of the other class.

But why don’t we talk about this? Because it’s too obvious.

Follow @Vinncent

The Cup went well enough that we finally got to focus on the soccer for a few weeks. Now, it’s back to the real problems.

Vincent Bevins
Rio de Janeiro

Since early May, and really, since June 2013, we’ve seen the meaning of the World Cup shift radically, many times. Before it all started, the questions were “Is this going to happen?” and, “Will Brazil hate their own World Cup?” We thought it would probably be fine, but many thought otherwise.

Then it started, and the mood in the country was “Wow, this is going pretty well.” By week two, it was time for the World Cup optimists and government supporters to declare victory, as well as to say “I told you so.” But in the last two weeks of the tournament, another shift took place, to a theme which never should have been surprising.

Lo and behold, this was actually a soccer tournament. After the Brazil-Chile game, few were talking about organization, or protests, or the effect on the election (except for die-hard partisans with blogs/Twitter accounts). People have been talking about the games – Brazil snuck by Colombia, and then was massacred by Germany. Costa Rica almost made it past the Netherlands, who were eliminated in an unimpressive semi by Argentina. How did Germany get to be the best? How does Brazil need to change its training to be more like them? These have been the issues. Soccer issues – finally.

To mix sporting metaphors, the World Cup should have been a slam drunk for Brazil. It should have been incredibly easy to prepare 8 venues well in advance of the June start date, and then simply to allow the interaction between foreigners and Brazilians to flourish in the streets and the magic to take place on the pitch. It’s a lovely country, and it’s a lovely tournament. There was no need to complicate things.

But it seems the government promised too much, both to its population and the all-important companies who pay for political campaigns here, and then seek profits from large construction projects. A World Cup, as it turns out, is not that complicated of an event. But Brazil’s government choose to pretend that an entirely new country would be delivered to its common people in time for kickoff. That backfired badly.

As it happened, the World Cup was a success. The fact that we could stop talking about logistical breakdown or mass protests is evidence of that. But it was only a success after exposing some of Brazil’s deep social problems, and damaging Brazil’s reputation a bit, at least for a while.

It will be two years before sports is the main focus again, when the 2016 Olympics start. In the meantime, it’s back to the real issues, a a bruising election and the bruising that Brazil’s military police seem to eager to hand out to anyone who gets in their way. If you haven’t seen it, check out the video of a cop brutally assaulting a Canadian documentary filmmaker at a protest Sunday.

The soccer is over. That was a kick to the face, not to a football. Back to the real problems.

The world expected Brazil’s state oil industry to oversee a boom driven by offshore reserves. But Petrobras is stuck between a rock and a hard place, as the government has needed to use the company to combat the eternal threat of inflation, grinding relations with the investors the industry needs.

By Dom Phillips

Graça Foster, CEO of Brazil’s state controlled oil giant Petrobras, was in this newspaper yesterday, doing some fire fighting. The reason was the fallout from the price rises Brazil announced just over a week ago – 4% for gasoline and 8% for diesel. This might not seem like a such a big deal, apart from the cost to Brazilian motorists, but it was front page news in Brazil.

This was not just a price rise. It is part of a political and economic battle that goes to the heart of how Brazil is run. And the analysts and observers who make their livings telling their clients what this sort of thing means were not very impressed.

Here’s why. Brazil used to export oil, but it doesn’t any more because it hasn’t got enough for itself. One reason is that a lot of cars keep being sold, in part because of credit people can get to buy them, in part because the government historically bet on cars rather than trains – there are hardly any here – and in part because the government has sometimes zeroed sales tax on cars to stimulate the economy.

Brazil doesn’t have enough gasoline and diesel to go round – so it has to import it. This process is controlled by Petrobras, the state-controlled oil company. But the government, which effectively controls Petrobras, makes the company keep prices low to keep inflation down. As a result Petrobras has been hemorrhaging cash by subsidising gas and diesel for the local population. Petrobras shareholders have gotten itchy.

Brazil is still traumatised by the hyperinflation it went through in the 1980s and early 1990s and ever since the financial system stabilised under presidents Fernando Henrique Cardoso and Luiz Inácio ‘Lula’ da Silva, the spectre of inflation’s return has haunted the country. Inflation is deeply unpopular in Brazil, especially amongst the poor, and has been hovering around the maximum the government says it can tolerate for some time. The government has been forced to take some very difficult measures to stop it going up any further. And the strategy Brazil has used with Petrobras has cast a shadow over what looked like a very promising oil boom just a few years ago.

The company has $237.7 billion of investments in its 2013-2017 business plan – much of will go to equipment to exploit the ultra deep water, ‘pre-sal’ or ‘sub-salt’ reserves that Brazil has off its Atlantic Coast. Another big chunk of it is going to refineries that it is building because it can’t actually refine enough gasoline and diesel. Petrobras is stuck between a rock and a hard place – losing money hand over fist, but unable to put the prices up more than once or twice a year when the government says it can.

The narrative played out like this. In October, Petrobras said it was going to adopt a new system in which domestic prices would automatically readjust to international prices. The market liked this and Petrobras shares went up. Petrobras had a board of directors meeting to decide all of this marked for November 22. Then everything changed.

We don’t actually know what happened, but according to Brazilian media and newspapers like this one and business daily Valor, generally quoting anonymous sources, the government did not like the Petrobras plan one bit. Automatic fuel price rises could impact badly on inflation – and that could impact badly on a government up for re-election next year.

The Petrobras board meeting was postponed for a week. Then after the meeting happened, on November 29, the company announced the price rises and said had introduced a new pricing mechanism, but that it wasn’t going to tell anybody what that mechanism was.

This looked like there was no new policy at all and that price rises would continue happening as and when the government decided – just as they had been. Shares fell. Analysts were very critical. At the Itaú BBA bank analysts said the difference between international and domestic prices remained at 22% for diesel and 17% for gasoline and that Petrobras would lose Real 6 billion ($2.57 billion) on imports in 2013.

It had been painted as a battle between Finance Minister Guido Mantega fighting an anti-inflation platform on one hand, and Petrobras CEO Graça Foster on the other, trying to stop her company’s losses with imports. The thinking is: Mantega won, Foster lost. Although Foster denied anything of the sort in her interview – insisting the relationship remained positive.

Whatever the personal relationships involved, this had been a financial, political and philosophical battle at the heart of Brazil. Capitalists say that Petrobras should try and make as much money as possible for its shareholders. Statists say it should do what will benefit Brazil. Cynics say the government uses it as a tool to benefit politicians. All of them have a point.

Foster, smiling in her interview photograph, said the drop in share price had been awful but overall, she insisted everything was fine. There might be price rises in 2014, she said. And she had no plans to quit. “The days are extremely long,” she said. “You have every kind of problem and every kind of good news.”

The famous friendship between Petrobras CEO Graça Foster and President Dilma Rousseff had not worked in Foster’s favour. But inflation might not go up as much as was feared. Brazil still does not have many trains but it does have plenty of traffic jams. Rousseff leads the polls to win next years election. And the Petrobras Downstream department – that’s the one that deals with refining and imports – keeps losing money.

What’s going on with the Brazilian currency? Like many ’emerging market’ countries around the world, Brazil has recently been unpleasantly reminded just how linked its fortune is to the decisions of the United States, and the Federal Reserve. The real has been all over the place since 2008, making things quite difficult here, and that has relatively little to do with what Brazilian politicians have done.

Take a look at the chart above to get an idea what a headache running a developing country has been since the 2008 financial crisis, and especially since the US Federal Reserve, which controls the global supply of dollars, began talk of ‘tapering’ earlier this year. ‘Tapering’ is Federal Reserve-speak for going back to the way the US Central Bank used to do things before 2008, which in practice means much less cheap money floating around the globe, since the Fed will slow down its direct asset purchase program (background here). The process of tapering is the first step towards stopping the Fed pumping extra money into the US economy, and (probably) the first step towards raising interest rates.

Just the possibility that the tapering might happen crushed the Brazilian real down to 2.45 against the dollar, from a high of 1.55 just two years ago. How can you create economic policy in a country in which the cost of both your exports and imports swings so violently, and how do you explain to your citizens that yesterday they could traipse around Argentina (and Miami and New York) buying everything, but now, really won’t be able to afford that trip to Europe (or even to Paraguay)?

Since 2008, Brazil’s currency became much too strong for its own good, and then also lost value much too quickly. As if Brazil needed further proof of how dominant the influence of the Fed is here, when we got wind that the ‘tapering’ wasn’t actually going to happen as soon as had been thought, the real jumped back up to 2.2. Maybe it will stay around there. Some credibly think it will have to hit 2.65. We don’t know.

Brazil’s government has made some very real economic mistakes in the last few years. But the pseudo-tapering debacle has reinforced the uncomfortable fact that at least in terms of the currency, Brazil has been on a roller-coaster since 2008. And except for small interventions, it is not President Rousseff or Finance Minister Guido Mantega doing the driving. The real protagonists here are huge flows of international capital, swooshing around the world, guided by the noises coming from the central bank of the United States.

Recent history

But of course banks aren’t required to invest in the US, and many quickly caught on that they could make a killing getting free money in the US, and then investing in growing emerging market countries where they could earn easy returns. This was especially true in Brazil, where interest rates have long been punishingly high for borrowers and a free meal ticket for investors. Brazil was also riding high on a decade-long Chinese commodity boom, and the government had a card up its sleeve to pump up the economy further in response to the crisis (basically, pump credit into the economy so that new middle class Brazilians could buy consumer items and pay the super-high interest rates), and so dollars poured into the economy.

By 2010 the economy was growing by 7.5% annually and was a darling of international investors (and those of us in the international economic press), and by 2011 the currency hit a high of 1.55 reais to the dollar. This meant it was extremely, extremely overvalued and virtually guaranteed to kill off Brazilian manufacturers that now found their goods too expensive to sell abroad – Mantega had railed against the US dumping so many dollars into his country and started the largely ineffective ‘currency war’ as a response in 2010. Nevertheless, the super-strong real generated a lot of positive press and confidence here in Brazil. Travelers felt rich. The Brazilian stock exchange had some spectacular years ‘in dollar terms.’ Brazil’s economy got larger than the UK’s. Eike Batista got far too rich as excited and cash-flush foreigners bet on his slightly exaggerated dream.

Since then, the realities of the Brazilian economy (not actually so dynamic outside of agricultural exports and credit growth) combined with some major mistakes in the Dilma administration (which of course got much more attention than they would have had they happened during the upswing) and growth inevitably slowed back to previously normal levels, and then almost ground to a halt last year. In the background, the US began to feel confident in its own recovery, and it became increasingly clear that a whole bunch of shale gas in the ground could power an energy boom.

Despite the solid long-term foundations of the Brazilian economy, the chaos in Brazil’s currency in the last few months has been about the Fed switching its strategy back to normal. The money river is drying up and the money went pouring back the other way, to the US. Or at least ‘markets’ remembered that they will. The peaks in dollar strength in that chart correspond exactly to those two points.

Much to the chagrin of everyone down here, we’ve been reminded that Brazil’s place in the global economic system is often more important than the national headlines we’ve been chasing. Even worse, they’ve realized it’s all about Uncle Sam all over again.

What can be done

Many thought Rousseff and Mantega were making excuses and picking fights by decrying the inflow of dollars into Brazil after 2008. They were, a little. But they were also right that Brazil was suffering due to the flood of foreign capital, and Brazil is now suffering at the way things have changed directions so rapidly.

Unfortunately, given the state of the international economic and monetary system, there’s little emerging market countries can easily do to avoid huge swings in the value of their currencies. The dollar is the international reserve currency, and the vast majority of Brazil’s trade is conducted in dollars, too. Some hope for a world in which neither of these things is true, and the US stops dominating global monetary conditions, but that is a long way off. In the mean time, one can only watch the Fed, or take comfort that the US may not be able to dominate forever if it keeps shutting down its own government.

So this is something almost no one would have predicted until recently. When I got to Brazil in 2010 the economy was on fire, growing at over 7% annually. We had a sharp slowdown in 2012, but had been waiting for a good comeback in 2013 and 2014.

But these notes from Nomura’s Tony Volpon, one economist who has on the whole been positive on Brazil as well as  (more importantly) generally right on Brazil for years, explain why 2013 and 2014 aren’t likely to be too rosy.

Nomura revises its forecasts for 2013 and 2014 downward to under two per cent for both years – specifically, to 1.6% and 1.8%, respectively. Inflation will also fall. We could look back on this as a very pessimistic moment, but in any case, it’s not looking good.

These notes (below) are heavy on wonky economic detail, but the upshot is that the US Federal Reserve is turning back towards normal monetary conditions, which will mean tighter finances for emerging market countries. From 2008-2013 we had zero interest rates in rich countries and the Fed pumping cash into the world economy, and lots of it made its way to Brazil – far too much, if we believe the talk behind the “currency war.” Now the stream is drying up and what’s left of the flow has gone the other way.

We journalists like to talk a lot about people and governments and mistakes and successes – they make better stories. But what’s often neglected is the simple power of the place a country occupies in the global economic system. Much more important than Dilma or Eike or protests: the flows of capital in the world economy.

Nomura – Brazil: Lower growth, lower inflation, and an election
Nomura – Latin America – When prices determine fundamentals 

After the excellent video Dom Phillips and Otavio Cury sent in to From Brazil on Monday’sprotest, we have two more. All with English subtitles.  Above, an extended interview with a lower middle class protester, and below, as the New York Times Lede Blog called it, a wordless glimpse of the energy on São Paulo’s streets on Tuesday.

[youtube DCR6OaIdaaU nolink]

Two weeks ago I wrote about the sorry state of customer service in Brazil, using a 7,000 reais mistake Vivo, my cell phone provider, had made on my bill as an example, adding to the growing chorus of those upset with the ways big companies treat consumers here. I suggested that – as one of their employees even admitted – Vivo intentionally makes it difficult for users to resolve issues and that this was part of a long-entrenched trend in Brazilian society to take advantage of customers.

As you would expect, the story quickly met with sympathy on social networks. And as you would expect, the response from Vivo’s press team was swift. They emailed me the next day, asking for my cell phone number so they could look into my case. I told them I would not tell them, as providing special treatment to me just because I have a Folha blog wouldn’t exactly address the underlying issue, but that I wanted to do an interview with them on the topic of customer service instead.

This didn’t work. They found my account quickly, and I was promptly informed that my bill had been reduced from $7,100 reais to $230 reais, which, coincidentally, is the least I have ever been billed and is certainly much less than I actually owe (is that a bribe?).

They told me that if I should ever have trouble in the future, I should contact them directly – contact their press team, that is. Again, I told them that this kind of special treatment for journalists only served to re-enforce my original point, that the average Brazilian, often overworked and in debt, is the one that gets screwed. So I asked for an interview again. They said yes, ok, hold on. That was two weeks ago.

Then began the waiting. I then said we could do it any time last week, and was informed that would be fine. Then, they said they’d need until Friday, or Monday (three days ago) at the latest. Since then, I asked once more, then again. No response.

Of course, it’s impossible they just hope I will forget and are trying to avoid the interview, and I expect it will happen soon. So I’d like to invite anyone who’s ever been confused by Vivo’s practices to submit questions of your own. They are already known as Brazil’s premier carrier so we shouldn’t be worried about hurting their feelings.

To submit a question, you can try the comments section but if that system is broken, as it sometimes is, you can send them on Twitter or to my email, which is available here.

Here’s some I’m curious about myself:

The interesting question for me is how the company relates to consumers in Brazil, whether I am right about their strategies, and how things can improve. Some questions:
1. Why don’t service agents in Vivo shops have phones?
2. Why can’t they help with complaints?
3. If a customer makes a small mistake, they are punished dearly. If the company makes a huge mistake, there is no penalty. Why not?
4. How has hanging up on customers come to seem like company policy?
5. When my attendant told me he was certain that Vivo intentionally made it difficult for customers to resolve bill issues, was he wrong?
6. Why doesn’t Vivo notify customers as their bill approaches what amounts to 6 months of wages for the average Brazilian? 

Submissions welcome.
Follow @Vinncent

A lack of consumer protections means big profits for companies. A Vivo employee, for example, admitted to me they make it as hard as possible to contest mistakes on a bill. But those really suffering as a result aren’t people like me (despite the 6,800 reais mistake in my phone bill yesterday, above) but poor Brazilians.

Note – Update included at bottom of post

I had already given some thought to adding to Helen Joyce’s excellent post at The Economist on the trials of being a TIM customer in Brazil, and not (only) because she seemed to get bizarrely obvious special treatment as a result.

It was because I think in some ways there is something more sinister going on here than just the ‘custo Brasil’. There seems to be an intentional attempt to profit nicely by making customer service issues extremely difficult to resolve, and TIM is far from the only guilty party on this one.

At least, that’s what my own Vivo Saga had been telling me for months. And then yesterday, a new chapter was opened which made me laugh uncontrollably between shrieks of terror. I discovered that Vivo had unceremoniously instructed my bank to transfer 7,159.86 reais to them.

That’s right. Instead of the normal 300-400 reais I pay, this time it was the equivalent of $3,500 US dollars for my monthly cell phone bill, and it was just going to disappear from my bank like that. Luckily for me, I don’t even have that kind of money in my Brazilian account, so it was stopped.

They are supposedly in the process of cleaning this up. But even if they do, one has to ask – if a consumer made a payments mistake to the tune of seven thousand reais, do you think there might be some consequences for him?

Unfortunately, my saga seems to me more evidence of how, in one of the world’s most unequal countries, corporations so easily get away with stepping all over the little people (and neither Helen or I, of course, are the actual little people).

The quick story:

I’ve had a Vivo Blackberry post-payment plan for a few years. And to use it abroad, I always paid a 180 rs fee to enable unlimited small-volume international data use for three months at a time. It wasn’t exactly cheap as it meant my monthly bill was 300-450 reais, but it was essential for my job.

But in January something must have changed, since my bill came in at 900. Seeing this was a big problem, I took a morning off work and went into the local Vivo shop.

“Oh, for any bill issues, we can’t help you, as we have no phones ourselves, but feel free to use the phones over there in the corner to talk to a someone,” he said.

What? The customer service representatives at the Vivo store don’t have access to the system? They don’t have phones?

I went over to the phones, where I spent over over an hour being transferred back and forth before someone would ultimately just hang up on me. Over and over. I think they must pretend this is a dropped call when you are on your cellphone, but I wasn’t. I was on their own fixed line.

The nice man at the desk didn’t know how to help me. That’s the only way, he said.

“Hrm,” I said. “They can’t find the person to help me. You here don’t have access to the system. You don’t even have phones. Don’t you think this is all set up on purpose to make it almost impossible for the customer to contest a mistake on the bill?”

“I think it’s pretty obvious that’s what it must be,” he said, shrugging with genuine sympathy. “It certainly works out that way for almost everyone.”

I eventually did get that January charge brought down to 300 reais, through an endless combination of in-person visits, phone calls, waiting, and whining obnoxiously on Twitter. How exactly is not interesting. But what is worth noting is that it was more trouble than it was worth. If I was a self-interested rational economic actor, I would have just let them have the r$600.

It was only through a combination of rage and curiosity that I saw this through to the end. In the process, I wasted so much time that I easily lost out on much more than r$600 in extra work I could have done.

But I am not normal here, of course. I earn much more than the average Brazilian, who takes home about 1,300 reais monthly. I also have a blog at Folha de S.Paulo and can make a stink if need be. Who really gets screwed due to a lack of consumer protections, quite obviously, is the new middle class, the working poor, navigating these systems for the first time and without the time or money to deal with being taken advantage of. There are many other ways this works, but first, briefly, back to me crying about my own problems.

After I resolved my January bill, I went back into the shop and made sure I could re-activate my old international unlimited data plan. They said yes. Then, on the way to the airport before a trip abroad, I called again to confirm it would be 180 reais, unlimited. They said yes.

Then yesterday, I saw an automatic debit transfer of over 7,000 reais was in motion for using my data plan abroad. I called, and I’m currently waiting (five business days…) for them to look into it and get back to me.

But imagine how much money that is for an average Brazilian. For a minimum-wage worker, the mistake in my phone bill is equivalent to approximately what they make in a year. And what does Vivo have to lose by constantly over-charging everyone? Worth a try.

At the risk of sounding reductionist, this is a country in which a small few have long profited off of the backs of many, often to a much greater extent than is true in many other countries. An overly simplistic narrative might be that the exploited worker is now being replaced by the exploited consumer.

Another obvious way this works is that banks and retailers push consumers into taking on debt at usurious rates for their purchases, without explaining what the actual interest burden will be (often over 100%). I know I have been shoved in this direction. I can’t imagine this should be legal.

As this analysis in Super Interessante correctly points out, we’re not just dealing with the ‘custo Brasil’ but also the ‘lucro Brasil’ – or the ‘Brazil profit.’

Here’s hoping Brazilians will be able to successfully demand their rights in the consumer marketplace, the way they previously did in the workplace.

UPDATE: May 8 – Vivo contacted me immediately about the post, asking for my number so they could look into the issue. I politely declined to share it with them and receive special treatment (for now, at least…) and instead asked to be able to submit a set of questions about their practices and the market more generally.

After all, I was not trying to single out Vivo as especially bad (As Helen’s post points out, they receive less complaints than any other company), and certainly not to just get my own problem solved. The normal respondents on the helpline said they’d be back to me in five days, so I’ll wait to see how that goes.

The more interesting question for this blog is how the companies relate to consumers in Brazil, whether I am right about their strategies, and how things can improve. So, if they agree to the interview (and I hope they do), some potential questions:
1. Why don’t service agents in Vivo shops have phones?
2. Why can’t they help with complaints?
3. If a customer makes a small mistake, they are punished dearly. If the company makes a huge mistake, there is no automatic penalty. Why not?
4. How has hanging up on customers come to seem like company policy?

Etc., Etc. If you have any questions of your own, feel free to send them in.

Follow @Vinncent

Brash Funk Carioca emerged in the 1990s from the illegal underworld of Rio’s favelas. Now, in a nod to North American rap traditions and Brazil’s new economic moment, a group of kids in São Paulo has hit it big using the music to celebrate conspicuous consumption.

By Dom Phillips

Wearing gold chains and baseball caps, two young men drive Lamborghinis past palm trees and up the driveway of a huge, white mansion. A bugle sounds. And the beats begin.

As does a luxurious party, in which Brazilian rappers Backdi and Bio G3 perform surrounded by women in short, figure-hugging outfits, while sipping champagne, gambling, and smoking big cigars.

This is the new video for their song ‘Vem Com Os Trutas’ – literally, ‘Come With The Trouts’, but ‘trout’ here is street slang for friends. Published on March 18, the clip has already been seen over 70,000 times on youtube.

And its depiction of an expensive lifestyle in which conspicuous consumption reigns supreme is another sign of how much one type of carioca funk, Brazil’s distinctive and hugely-popular, bass-driven hip hop dance music, has changed.

This is funk de ostentação, or ‘ostentation funk’, and it is, says Bio G3, made for a socially-mobile Brazil. “People are doing well. They stopped complaining,” Bio G3 – Cleber Alves, 29 – told From Brazil.

“A champagne já tá no gelo e as gatas tão na sofa,” the pair chant in the track: “The champagne is already on ice and the gatas (literally cats, but slang for hot girls) on the sofa.”

In one scene, Bio G3 gently kisses the enormous silver cross hanging on a pendant around his neck in the mansion’s bathrooms while a glamorous blonde watches entranced – though whether that’s by the rapper or the jewellery is, perhaps deliberately, left ambiguous.

Ostentation funk is last year’s hit, and there are hundreds of videos like this, in which expensive champagne is lovingly poured (close-up on the label); motorbikes and jet-skis are ridden; and pool parties are packed with curvy girls in bikinis dancing lasciviously.

The blue 100 real notes (worth $49) – the highest denomination in Brazil – feature heavily. This video by MC Guime, called ‘Plaque de 100’ (100 Plaque) has been seen 23 million times. In it, he flaunts a R$100 note with his face on it.

In this video for his track ‘É Fluxo’ (It’s Flow), São Paulo MC Nego Blue parties on his own private plane.

A cigar is lit with a R$100 note in this video for the track ‘Os Invejosos Vêm’ (The Envious Come) by Rio artist Menor de Chapa.

Carioca funk, or just funk, as the sound is often known, has been around for decades in various forms. In its current incarnation, as a brash, confrontational ghetto music, since at least the late 1990s. The sound is characterised by clattering, electronic beats, over which rappers, or MCs, deliver rhymes about sex, violence and life on the sharper end of Brazilian society.

“Rap, for Black America, is like our CNN,” Public Enemy vocalist Chuck D once remarked. As Brazilian hip hop is a much more specialist sound, concerned more with protest – a “manifesto”, as Bio G3 calls it – it is funk that fulfils this role in the country. Although, musically, the sound has more in common with the Miami Bass that inspired it, or with dancehall reggae.

Funk has long been associated with the Rio de Janeiro favelas it came from. But with funk de ostentação and its glorification of the conspicuous consumption that is so rife in Brazil, São Paulo seems to have stolen Rio’s funk thunder.

In ‘Vem Com Os Trutas’, Backdi and Bio G3 chant:

“São Paulo não é bagunça tem que manter o respeito/é selva da pedra, terra da garoa,” they add. “São Paulo is not a mess, it has to maintain respect/it’s the stone jungle, the land of drizzle.”

The city’s legendary work ethic even gets a mention when the rappers declare: “Nos temos dispozição de matar um leão por dia” – literally, they are ready to kill a lion every day, a phrase often used by entrepreneurs and workers to describe meeting the challenges of the working day.

“Consumption in São Paulo is bigger, the city is bigger,” said Bio G3. “Today, funk in Brazil is São Paulo, no doubt.”

This is all a long way from funk’s beginnings at illegal parties, or bailes, often run by drug gangs deep in Rio favelas where police rarely trod. British journalist Alex Bellos wrote about the scene in the magazine Mixmag in 2001, and returned to the subject in 2005 in this excellent Observer Music Monthly piece.

This Brazilian documentary Favela On Blast is one of a number of films made about the genre.

Initially despised by the Brazilian upper classes, funk soon took acquired a certain cachet: dangerous, edgy, ghetto. In 2005, it was even rather daringly played at the Christmas party of a famous, and very mainstream Brazilian television presenter I attended. Now it’s heard all over Brazil.

Wth ostentation funk, the style seems to have come full circle: Backdi and Bio G3 also have a song called ‘Classe A’, the term for the highest-income segment of Brazilian society. And there is even a documentary about ostentation funk.

Bio G3 used to do hip hop, but switched to funk eight years ago because he saw he could “reach a bigger public”. He claims to have invented ostentation funk in 2008 with an ode to his expensive sunglasses called ‘Bonde de Ju Ju’. But it is over the last 12 months that the style has caught fire.

“I didn’t imagine the impact it would have,” he said. “It became gigantic, it became mass, so today we represent this category.”

Brazil too has changed since funk first emerged from Rio’s favelas. Perhaps the music needed to change with it. As Vincent Bevins noted in his piece about class last week, around 40 million Brazilians rose out of poverty over the last decade – many of them into what is usually called classe C – or class C.

This is usually described as a new middle class. Though it could be argued that class C resembles more the British working class of the 1960s and 70s, as they bought their first washing machines, colour televisions and foreign holidays.

It is class c that drives Brazilian consumption, which in many ways drives the economy. As a result, the upper A and B classes have had to become used to the sight of Brazil’s nouveau riche on flights and in restaurants that were formerly reserved for the rich. A new reality they frequently complain about.

And while the Brazilian economy isn’t growing very much any more, people are still spending. The Central Bank said in March that family consumption would grow 3.5% this year, driven by credit and near-full employment. Sales of luxury imported cars, such a staple in ostentation funk videos, keep growing.

And ostentation funk, too, has crossed over from the music’s traditional fan-base in lower income groups to high society. Bio G3 has performed at upscale São Paulo clubs like Pink Elephant and Royale. “We are talking about consumption, and this began to please class A and class B, not just C and D,” he said.

Released in 2012, ‘Classe A’ was aimed in both directions.

“The song is about consumption, but not just consumption, it is also about attitude. To be class A, is not just a condition, it is a personality, a quality,” he explained.

In short, he seemed to be saying, it’s about having style. Albeit with a heavy dose of bling – ostentation like this is nothing new in American hip hop. Nor are some Brazilian funk artists adverse to simply nicking a few glossy scenes from US rap videos to insert into their own productions when their own production budgets don’t quite stretch to it.

There is social mobility too within the funk music industry. In 2005, Alex Bellos wrote about a Rio funkeiro whose hit had not provided a way out of the favela. When Rio MC Deize Tigrona recorded her hit ‘Injeção’ (Injection), in which a doctor’s injection serves as a thinly-disguised metaphor for anal sex, she was working as a maid.

Bio G3 was born in the poor, outer São Paulo suburb of Tiradentes but now owns three imported cars, including a BMW. “I bought a house for my parents, so I’m in a better condition than I was,” he said. “But it’s not the limit.”

All photos screen shots from “Classe A” and “Vem com os trutas”

This year, the country didn’t deliver on everything international observers thought the country had promised, but Brazil still remains one of the 21st century’s most remarkable success stories. 2013 could be decisive.

For those paying attention to Brazil headlines, 2012 was mostly a bad year. For some, it was enough to re-evaluate the status as an emerging power that the country has euphorically held for years now.

The economy barely grew, and government involvement in the economy has surprised some international investors. The ruling Worker’s Party was dragged through the mud repeatedly as the Supreme Court handed down sentence after sentence for a vote-buying scandal from Lula’s first term. The PCC returned to the scene in São Paulo, and a small-scale war broke out between police and the gang. New laws dismayed environmentalists concerned for the Amazon.

But Brazil still remains one of the most remarkable success stories of the 21st century. This is true for a few simple reasons. 40 million people have risen out of poverty, and inequality has decreased. Despite the slowdown, unemployment is at record lows, and wages have continued to rise. Perhaps most importantly, we saw last week that President Dilma has an eye-popping 78 percent approval rating.

In short, the vast majority of the population support the way the country is being run, people are better off than ever, and society is more just. It’s important to remember that this is the whole point of economic growth and democracy in the first place. The results are there. We shouldn’t confuse means with ends, as is so easy to do when we journalists get caught up in the latest GDP numbers, or scandal.

Even some of the the year’s worst stories have a positive flip-side. As ugly as the corruption trial was, many believe that the tough sentences handed down to high-level politicians could signal an end to political impunity in the country. And despite the tragedy of a spike in violence in São Paulo’s periphery, the state’s murder rate is still much lower than it was a few years ago.

When Brazilians and observers (justifiably) complain about the country at the moment, a little context can be uplifting. What has the world been going through for the last 12 years, especially since 2007? How many countries in the world can you point to with: rising standards of living, reduced inequality, and widespread, long-lasting contentment with leadership? This is certainly not how things feel in my native California, or in Europe. And all of this in an open, liberal democracy? I can’t think of many examples.

But of course, nothing guarantees this will continue, and 2013 could be a decisive year. We can’t expect wages to rise forever without economic growth returning, and so the world will be holding their breath until it does, as expected next year.  But if instead there is more stagnation, or more of what the international community sees as state meddling in the economy, international investors could finally give up and concentrate on countries like Mexico or Colombia. And it’s hard to imagine how the PT would be seen by the people if any of the party’s social gains were reversed.

I personally don’t think either of those doom scenarios will come to pass. We’ll see. But for now, here are some of the bad, the good, and the interesting stories from 2012.

These are summaries – click the links for more in-depth info.

The bad

Corruption –

We watched all year as high-level politician after high-level politician was brought down for the ‘mensalão’ scandal from 2003, and a new hero of the opposition (and anti-corruption movements) was born in the form of Joaquim Barbosa (pictured above).

Violence –

War broke out for the first since 2006 in São Paulo. Again, the major parties were the PCC, the state’s main gang, and the military police. The latter lost over 100 officers to (mostly) targeted executions, while the murder rate in SP jumped.

The economy –

This is the big one. After growing 7.5% in 2010 (and causing us in the international press to rush here), then slowing to 2.7% in 2011, we may not do much better than 1% in 2012. Even more awkward was the moment when Finance Minister Guido Mantega joined the rest of analysts in wildly overestimating third-quarter growth, leading The Economist to call for his dismissal. Needless to say, President Dilma was not pleased to hear this from the British magazine.

But the economy is expected to pick up in 2013, thanks not only in part to the huge cut in interest rates carried out this year, which have finally come down to the levels of a normal country. And in reality, the 7.5% growth year was a statistical blip after -0.3% in crisis-hit 2009. Taken together, the economy had been growing at 3.6% a year, close to the average over the last 20 years, and to what we’re likely to see over the next few years.

But more worrying is that some investors believe, whether rightly or wrongly, that the government has begun to micro-manage the economy and that the possibility of intervention may be unpredictable. Much of this has to do with the decision to lower energy prices. I personally think they’re wrong, or at least that this was a problem of the government’s way of communicating the changes rather than the changes themselves. But some people are on edge, and this is especially important, as a drop in investment is the real culprit for the bad numbers.

And of course, there remains so much that Brazil should and could do to increase productivity and upgrade its growth model.

Infrastructure –

We are still waiting on this one. This is one part of Brazil’s economy that most desperately needs to be resolved, and we’ve still only seen baby steps.

The environment –

My visit to the Amazon this year was not pretty, both because of the persistence of slave labor and the obvious destruction of the rain forest. Things took a turn for the depressing for environmental activists as the government rolled back protections in 2012.

The good

Politics –

Whatever you think of the ruling Worker’s Party (PT), it is undeniable that if you use the standard most often applied to political parties, Lula and Dilma’s have overseen a truly remarkable success story since 2003. Lula left office one of the most popular leaders in the world, and two years into her term, Dilma is already widely supported. 78 per cent approval is a breathtaking figure. And this after everything that happened in 2012.

Despite the mensalão mess, the PT did very well in municipal elections this year, and took back São Paulo, South America’s largest city. If 2014 elections were held today, all polls indicate Dilma would win by a landslide.

And without a doubt, the country plays a much larger role on the world stage than it did in 2002.

The PT, like everyone else, could improve greatly, but widespread support and a rising nation means you are winning, big. This is a tough act to follow.

The real economy –

As I mentioned above, for all the dismal numbers, life on the ground still feels better than ever. Families are still rising out of poverty. The explanation for this is a little complicated, but the reality is there. It can’t last forever like this, of course, but forever hasn’t happened yet.

Justice –

The flip side to the mensalão mess is a justice system which really has teeth for the first time anyone can remember. This has always been the case for the poor, but now politicians can be on the hook, too. This has many hoping they will think twice in the future.

Even some police are being held to account. Some of those that gunned down suspected members of the PCC and, by all accounts, set off this year’s wave of violence, are now in jail.

World Cup preparations –

For years we wondered if Brazil would be ready to host the World Cup. We haven’t sorted out our infrastructure problems, but it looks like at least the stadiums will be ready.

My personal take is the following: The World Cup will go the way Brazil does for most visitors. Something or another will go wrong. They’ll be stuck in traffic, or miss a flight, or end up spending more than they expected on this or that. But those things will be heavily outweighed by the charm of the country and the fun of the event, and most will go home raving about Brazil.

Cost of living –

For us foreigners, it’s been good news that the real has come down significantly this year. Brazil is no longer so maddeningly expensive. For Brazilians, the cost of living hasn’t changed much.

Corinthians –

“The people’s team” from São Paulo took the world club championship, and gave Brazilian football a much-needed boost. This also meant lots of traffic and nonstop fireworks in the city, but overall it was very good for the country, and for South America.

The unexpected and interesting

Lula back on the scene –

I suppose it was more of an anomaly that he was actually gone for a while. But after recovering quickly from cancer, the former president was given a grand welcome back and got to work quickly, helping out in this year’s municipal elections. Crucially, he has so far floated above the mess of the mensalão scandal, and insisting he know nothing of the scheme. We’ll see if he can keep this up in 2013.

Music –

2012 was a much more interesting year musically than 2011, in my opinion. We saw the rise of Brazilian hip hop to the mainstream, “techno brega” from the Amazon in the form of Gaby Amarantos, and funky pop from the likes of Tulipa Ruiz. Here’s our full interview with Emicida, and Criolo’s will be posted next year.

Eike Batista –

He did not have a good year. There was the unfortunate incident with his son, Thor. Then he attracted lots of negative attention, and fell quite dramatically from his position as Brazil’s richest man.

Race –

Hard to categorize this one as good or bad, but the country stared two deep-seated problems in the face this year: relations with indigenous populations, and the government’s approach to black Brazilians.

Tourism –

The sector is doing quite well, but it has nothing to do with the gringos. The sector is almost entirely powered by Brazilians moving around their own country.

The rebirth of the center –

Long more famous for being “Crack land” than anything else, we saw interesting new movements coming up from the street.

Evangelical power –

Much to the dismay of bien-pensant liberals, Brazil’s numerous, and often unsettling, Evangelical Christian churches revealed themselves as an ever more potent political force.

Exhibitionist turn –

We saw Brazil’s sub-celebrity realitytainment industry power into the same bizarre gears we’ve been accustomed to around the world. First, there was the sex, or perhaps rape, transmitted live on Big Brother Brasil. Then we had the young girl who auctioned off her virginity for $800,000.

Petrobras – Graça Foster –

One of South America’s largest companies inherited a true rags-to-riches story as Graça Foster took over. Here’s hoping she can help navigate Petrobras out of its current mess.

Niemeyer –

And finally, we bid a sad farewell to nation-defining visionary architect Oscar Niemeyer, who passed at 104 years old. Here’s an interview I did with him last year, and perhaps next year I’ll post my pictures from his 104^th birthday party.

Here’s hoping 2013 goes better. Happy New Year.

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Guido Mantega – Taking heat. In the last 3-4 days, international opinion on the Brazilian economy has turned.

It all started last week, when Guido Mantega, Brazil’s Finance Minister, predicted the beginning of a turnaround in the country’s economy. Then the actual third quarter results came out, far below what he, and even the most pessimistic economists, had predicted.

This has set off a wave of doubt, head-scratching, and criticism, especially abroad. It’s a significant moment, as people are beginning to really question what is going on here, where there had recently been almost miracular economic growth.

As always, I think the propensity of those of us in the media is to exaggerate and then indeed exacerbate short-term swings in economic cycles (we as probably did on the way up in 2010). Unfortunately (we) foreign correspondents can actually matter on these kinds of issues, affecting investment flows. So this conversation is an event in itself.

For the record, I think Brazil’s long-term fundamentals are still very strong, a rebound will come, and that some of the current problems are over-stated, specifically the worries that the state is becoming dangerously interventionist or that rules and contracts here aren’t clear. That criticism to me seems ideological – if China and Korea are allowed to be so different from the US or the UK, why can’t Brazil do things their own way? There are more ways than one to run an economy. The state plays a big role here, and it has been that way for a long time. Dilma has changed very little. Let’s not forget another little fact: during this period of stagnation, no is one losing jobs and wages have continued to rise. But since this isn’t about me, let’s let them talk:

Washington Post – Amid slowdown, Brazil turns inward – Echoes Washington’s accusations of protectionism

Reuters – A case study in Brazil’s economic troubles – a company hurt by Dilma’s move to lower the price of electricity

Nomura – Brazil, the confidence paradox (PDF) – The most in-depth and, for my money, the best analysis. Says – the Brazilian government is solving the right problems, but in ways that make international investors uncomfortable. Is it worth it?

Reuters – Brazil’s economy, five strengths and weaknesses – Right on the money about high costs, and on how we haven’t yet seen the (significant, positive) effects of lower interest rates

Financial Times – Beware membership of this elite club – This one may hurt the most. Argues that it’s a very bad time to be a BRIC

Financial Times – Downturn shakes Brazil from its dream – A good overview. What is going on? What can be done?

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South America’s largest country is finally, hopefully, on its way to patching up its woefully lacking infrastructure. But fixing one problem sometimes means dealing with others.

By Dom Phillips

Living in Rio can at times feel like living on a construction site. Construction is all around: a new metro line, new highways, the whole decayed central port area being redeveloped, Olympic facilities, the Maracanã stadium. Not to mention all those people doing up their houses.

It’s not just Rio. Brazil is in a frenzy of construction. And much of it is around infrastructure.

Because infrastructure is something that Brazil sorely lacks. Trains, for instance. There is no train between the country’s two biggest cities: São Paulo and Rio de Janeiro. Just planes and buses. There is no train between any of the four airports in these cities and their centres. Just buses and taxis.

Or cars, which seems to have been the only default transport option successive governments thought of in Brazil. And now much of the population has a car, and the roads in big cities are jammed.

Too many cars, not enough roads, not enough railways to carry cargo so it goes on trucks which fills up the roads further. So the government’s announcement recently of a public-private partnership to build 7,500 kilometres (4,660 miles) of roads and 10,000 kilometres of railways, involving R$133 billion ($66 billion) over 30 years was broadly welcomed.

Even the government admitted it was long overdue. “The first structural initiative to endow the country with an adequate transport system, after two decades of low investment,” the government declared in its announcement document. Given that the ruling party, the Partido dos Trabalhadores, PT, or Workers’ Party, has been in power for one of those decades, one can’t help wondering why they hadn’t thought of it before?

A taxi driver bemoaned the lack of transport options to me the other day, as we trundled through the endless Thursday night traffic on the way into town from the Riocentro centre, out past the Rio suburb of Barra de Tijuca. A carioca (Rio native) said the same thing, as he explained the traffic problems in the suburb of Jacarépagua: all this stuff grew up without any expectation that anything more than a car or a bus would ever be needed to get there.

Riocentro is where the Rio+20 United Nations sustainable development conference was held. This week it hosted the enormous Rio Oil & Gas conference. 50,000-odd turned up to both. Both times there were shuttle buses to central points. But obviously, no train. “Back when they built Riocentro, this was all outback,” said the taxi driver. “But today everybody has a car.”

The Olympic Park is going to be situated nearby. So the government are extending a metro line which will go some of the way then meet a highway that will have a bus rapid transit link (BRT). BRT sounds flash. But it’s still a bus.

Then there are bigger state-sponsored projects, such as potentially vast sub-salt oil reserves, thousands of metres below the sea bed, hundreds of kilometres off the Rio and Espirito Santo coasts, that government-controlled oil giant Petrobras is going to extract.

Petrobras is getting as many of the rigs and production platforms constructed in Brazil as it can to meet government rules on ‘local content’: essentially, requirements to build a large amount of this stuff in Brazil because we want to grow our domestic industries.

Brazil used to have a decent shipbuilding industry, but it fell into disuse and disrepair. Now the government is hoping the sub-salt boom will help to revive it.

Politically, this makes sense – more jobs, more votes. For Petrobras shareholders, it means a slower journey towards increasing production of oil and gas, because some of the shipyards where their rigs are going to be built are themselves still under construction.

In the North of Brazil minerals giant Vale is duplicating the one-track railway line it has that runs from its iron ore mine in Carajás, in the Amazon, to São Luís. It’s there that development hits rural reality. Not only does the track run through land where around 100 members of an uncontacted tribe, the Awá live, it also passes near quilombos, which are agricultural settlements of the descendents of slaves.

In July a judge in São Luís suspended work on the railway because of its environmental impacts. The ban has now been lifted. But there are still legal problems looming for the railway project. But there’s also a gigantic quantity of iron ore to be moved from the mine, which the company is expanding – as it is, in 2011, Vale exported 109.8 million metric tonnes in 2011. The view from São Luís is of a constant line of giant cargo ships, steaming out of Vale’s port near the city. That number is going to increase to 150 million metric tonnes by 2014.

But Brazil needs the income those iron ore exports bring in, much of it from China. Just as it wants the income from all that oil it’s going to produce – 4.2 million barrels of it a day in Brazil by 2020. Just as it needs the electricity that will be produced by Belo Monte, the controversial hydro-electric project in the Amazon, whose construction involves flooding hundreds of kilometres of rain forest, threatening the livelihood of tribes who live there.

This is the problem with development – once you start, there’s no stopping it. You can’t grow the income and industry of a country this big without making a mess. You can’t do this without dramatically impacting on the lives of the populations that live in isolated places like this. On one hand, the economic benefits works like this could bring to these isolated rural populations, on the other, the environmental impact inevitably involved cutting down trees and dramatically affecting the life of those same populations.

“Brazil without misery. Rich country without poverty,” is the government’s slogan. But at what cost? Never mind the economic benefits, is all of this just going to expand the country’s army of consumers? Will they be happier? Will the Amazon just be decimated into a series of theme parks criss-crossed by highways and dotted by mines and dams, with islands of biodiversity, like in the film Jurassic Park?

Business daily Valor ran a story on what 12 indian tribes affected by the Belo Monte dam wanted as compensation. 40 four-wheel drive pickups with air conditioning were included, along with 303 houses with indoor bathrooms were included on the list. And 1,300 heads of cattle, 500 of them from the Nelore breed. Not to mention 12 cellphone towers with wireless internet capacity.

The Indian tribes didn’t think of asking for a railway line development. Pity. Vale – which bought a 9% in the Belo Monte project in 2011 worth $1.5 billion – is apparently pretty good at them.

The story is told through a group of girls in a favela, working the first jobs they’ve ever had. What is not explored in depth is the hard economics behind this disconnect between GDP growth and the reality on the streets. What explains this? (wonky post – skip straight to the story for the big picture only) Here are some attempts at answers :

1. Demand for services has kept up, while output in the manufacturing sector has tanked. But since the ratio of people working to GDP output is much higher in services, you can lose, say 3% of GDP in manufacturing, gain the same back in services and break even on GDP while increasing total employment. This is Tony Volpon’s breakdown (he’s quoted in piece), and he thinks that eventually wages will be squeezed, allowing for a re-balancing in favor of manufacturing as labor costs are forced down.

2. Brazil doesn’t have enough qualified workers for many of its most important sectors. This is a fact and, in the long term, a problem.

3. There is a lag effect between GDP and real life in this case. Consumers have binged on credit, keeping the motor moving in parts of the economy, but there is a built-in limit to this. This is a variation on the first thesis, but stresses more forcefully that this model is not sustainable (something most agree on). There’s evidence the government knows this, too. See the huge focus recently on infrastructure. If growth doesn’t come back, normal people will feel it, most agree.

4. Stock prices, economic numbers, the mood of markets and the financial press change  much more often than the trends which actually affect lives. That’s the nature of the beast. Real people don’t care much about a tough quarter or two if things pick back up. Let’s hope they do.

Continue reading ‘Brazil’s economic slowdown so far leaves many unscathed’ at LA Times

In this profile I did for the Los Angeles Times, sources explain that his catastrophic losses this year were in part related to his, erm, shall we say, unique personality. Much about the way he behaves will shock English-speaking readers, and the way he promised investors more than he could deliver led the markets to punish him severely.

His losses were far worse than anything else going on in Brazil. It is him, and not the economy more generally, that really tanked. The current wisdom is that Brazil will probably re-balance to more modest but decent growth, and that Eike’s companies will probably do OK eventually.

The problem, however, is that he quite purposefully and forcefully made himself a symbol of Brazil’s success. And not just the long-term opportunities for natural resource extraction he represents. His getting REALLY RICH, RIGHT NOW became a goal in itself, and, the myth went, proof of Brazil’s worth. That never made much sense.

Continue reading “In Brazil, a billionaire’s reality check” at the Los Angeles Times

When I moved here two years ago from London, I was shocked by the big increase in cost. Brazil is now an extremely expensive country, and it has been for a few years now. Numbers that came out last week ranking São Paulo the world’s 12th-most expensive city – above London, Paris, and New York – will come as no surprise to the embattled Paulista who must deal with the threats of $40 pizzas and menacing cell phone bills on a daily basis.

But around the world, old stereotypes die hard. Few gringos living abroad actually believe us. Brazil must be like Tijuana or Peru, they think. You know, Latin America. Wrong. Very wrong, as I explain today in the Los Angeles Times.

For those still clinging to the notion that South America provides cheap, exotic experiences for foreign visitors, arriving in Brazil these days can be a bit of shock.

Continue reading “Brazil may offer visitors thrills, but there’s nothing cheap about it” at LA Times

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Walk around Rio or São Paulo these days, and it’s easy to feel the economic boom Brazil has been enjoying this century. But what region of Latin America’s largest country has done the best?

The Northeast. In the last decade, the traditionally poor Northeastern states have grown four times as fast as the richer areas of the Southeast – by over 40% since 2000.

As this article in today’s Los Angeles Times points out, it used to be that poor migrants from the Northeast made the trip south for jobs in the big cities. Those days are largely over. Now, Brazilians rich and poor are moving to new economic capitals like Recife and Fortaleza and finding very well-paid work there.

Continue reading “Brazil’s historically poor Northeast finally gets its boom” at the LA Times.

Image: Setting up for one more excellent show at Recife’s Carnaval

Over lunch recently, a high-ranking executive gave me a strikingly obvious bit of off-the-record advice: “There might be a day when the Chinese stop building so much with steel, but there will not come a day when the Chinese stop eating.”

China is the most important consumer of Brazilian goods, and that is not likely to change anytime soon. At the moment, Brazil’s #1 export is iron ore, #2 is oil, and #3 is soya. But economists argue China needs to shift from a construction-heavy model to one based more around consumption. It’s also clear that Brazil’s potential to develop its arable land is enormous, and that the country could become one of the world’s breadbaskets.

Earlier this month, I reported on some more bits of good news for the agricultural sector in this piece in the Financial Times.

Click here to keep reading, “Brazil: soya bonanza” at the Financial Times.

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SAO PAULO, Brazil — If you plan to fly somewhere in Brazil on a busy weekend, you’d better be prepared to wait. At some airports, up to a third of the flights can be canceled or delayed.

If you choose to drive, you’ll sit in traffic. The 50-mile trip from Sao Paulo to nearby beaches for the Carnaval holiday this year took as long as five hours.

If you’re counting on the planned bullet train between Sao Paulo and Rio de Janeiro, good luck with that. It won’t be ready when Brazil hosts soccer’s 2014 World Cup. In fact, the transportation minister said recently that it won’t be operating until 2022, at the earliest.

And if you’re a farmer, whose commodities are helping fuel Brazil’s export boom, you’d better count on up to a third of your harvest falling out of trucks navigating bumpy old roads on the way to market. Then you might wait for days at overwhelmed ports to unload the rest.

Continue reading “Brazil wins the gold medal in gridlock” at the Los Angeles Times.

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Of course on an economic level, this will get the country absolutely nowhere. Though Obama was likely telling the truth when he said he understood Brazil’s concerns, he has plenty of his own. Unfortunately, on the list of considerations that end up dictating US monetary policy, the President’s relationship with Brazil may not be in the top 50.

But politics is about politics, and naming and shaming the US may be worthwhile sometimes. It was indeed the US that caused the financial crisis, and reminding them that the rest of the world suffers as a result could be good for diplomatic leverage.

Back at home, what can be done to save Brazilian manufacturing? What should be done? Fears about the death of industry have become the main political and economic concern in Brazil recently – I explored this issue quickly in the LA Times after workers took the streets last week – but opinion is divided.

Amongst economists, business leaders and government officials, there are three basic schools of thought.

1. Brazil’s manufacturing sector is fundamental to the country, and world-class. If it weren’t for unfair and unexpected developments coming from the US, China, and Europe, we’d be doing fine, and something needs to be done to combat those countries.

2. Brazil’s manufacturing sector is fundamental to the country. But despite the problems caused by the value of the dollar, the real problem is a lack of competitiveness, and the government needs to undertake radical reform to reduce costs in Brazil.

3. Forget it. Brazil doesn’t need to export manufactured products, and even if it did, long-term economic trends will make it impossible. Brazil should focus on managing the transition to a natural resources economy. That doesn’t have to be so bad, they say. Australia and Norway have managed quite well.

Position one is held by the government and by representatives of the industrial sectors. This is especially true if you judge them by their actions rather than their words. Both Dilma and market leaders do agree that reform is necessary, but actually trying to do it has so far been out of reach. It would be costly and politically difficult to improve infrastructure, reform the tax code, and adjust government expenses. What we’ve seen instead is the currency war and a set of stimulus packages for the struggling sectors.

Position two is held by some economists and business leaders that you might say belong to the “development” school. Brazil should be very worried about trying to exist on basic goods alone – the country worked very hard to overcome dependency on selling commodities, and we shouldn’t let that slip away. The government should do all that is possible, including everything listed above, to save the sectors.

Position three is held by a surprising amount of serious commentators, who might be called the “free market” or “comparative advantage” school. Yes, reform is needed all around, they say, but things will be getting even tougher for industrialists. In the long term, the dollar will drop more and more, and the pre-salt reserves will only exaggerate the circumstances in favor of commodities producers. History is not on your side. Deal with it and move on. Unsurprisingly, the fact that serious people even think this does not please either the government or most business leaders.

When Dilma gets back, this will be the debate she will be wading through for probably the rest of her presidency.

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It’s the locals. The numbers of Brazilians travelling around their own country has shot up in the last five years.

In this piece for the Financial Times, I write that with 95% of travel and tourism driven by domestic spending, Brazil now has one of the least international tourist industries in the world.

Take a stroll down Copacabana Beach these days, or talk to hotel workers around Rio, and it’s clear that the tourist industry in Brazil is doing just fine. But it’s not the stereotypical sunburnt gringos that are powering the sector. Almost all of the growth is coming from Brazilians travelling around their own country.

Continue reading “Brazil tourism: forget the gringos” at the Financial Times

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Neither Thor nor Eike denied that the 20-year old’s Mercedes-Benz SLR McLaren struck 30-year old Wanderson Pereira da Silva at high speed, killing him instantly. But both took to social networks to proclaim Thor was not at fault.

Now, it looks like the heir-apparent to the $30bn empire will not face any criminal charges, and that empire has just gotten a very welcome cash injection from a friendly sheikh in the Gulf. Mubadala, an investment arm of the Abu Dhabi government, will drop $2bn into EBX, Eike Batista’s group.

Mr. Batista has gotten very, very rich off of publicly floated plans to develop Brazil’s oil, gas and mineral resources, and has recently expanded into hospitality, real estate, technology, and beauty companies.

But so far, few of his businesses have actually made any real profits. This makes the new deal especially important for him.

As the FT’s Beyondbrics reports:

Mubadala’s $2bn investment in the EBX holding company itself is a big vote of confidence. As Batista said himself in an interview with beyondbrics, “it brings branding by a strategic investor who is internationally known”. But more importantly, it means Batista can choose to spread the cash across his various businesses without losing any operational control.

Batista is quite a character. His father was head of Vale, Brazil’s most important mining company. After Eike made his own billions, he has often surprised the foreign correspondents who interview him by showing off the Mercedes he keeps parked in his living room, openly proclaiming he will soon be the world’s richest man, or taking them for a helicopter ride.

Such a man understandably divides opinion. Some praise him as proof that private sector entrepreneurship and the pursuit of wealth bring benefits to Brazil, and have made his book, “The X Factor“, a best-seller. Others see his bragging as very poor taste in a country still facing widespread poverty. And the financial crowd has often questioned when his companies will actually make money.

But after a rough spot, the Brazilian legal system and Arab money have stepped in to help him out, and Eike is on top again.

Links:
Why has Brazil been getting richer?
FT Beyondbrics – Batista gets a new friend from the Gulf

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But this is about much more than just the fate of 17 unhappy executives at Chevron, the major US oil company. The project to extract oil from Brazil’s offshore “pre-salt” reserves is arguably the most important challenge this country is facing over the next decade. The future of Brazil’s economy likely depends on its success as much as anything else.

Understandably, much attention has been focused on Brazil’s preparations to host the World Cup in 2014 and the Olympic Games in 2016. But compared to the country’s oil plans, those investments are tiny.

One expert put it this way in my Los Angeles Times piece in December:

“This will be one of the largest investment projects in all of human history,” said Pedro Cordeiro, an oil expert at the Bain & Co. consultancy in Sao Paulo. “Putting a man on the moon, for example, cost 30% less in current terms than will be spent [on Brazil’s oil project] in just the next five years.”

So it was understandably a source of considerable concern when one well (though not a “pre-salt” well) sprung a leak in November, and then it seemed like operator Chevron had misrepresented the problem.

Brazil needs to find a way to efficiently extract the offshore oil deposits, while maintaining high environmental standards, but without scaring off international investors or partner companies. This is a tricky balance to strike.

Reuters today reported that the 17 employees could face charges Wednesday relating to safety standards, and cited experts that implied Brazil might be coming down too hard on Chevron, with the potential to slow down extraction plans or scare away other companies.

For example:

“We are in uncharted territory,” said Cleveland Jones, a Brazilian oil geologist at the State University of Rio de Janeiro. “Do we want better environmental standards? Yes. Did the environment get really hurt? No. If you applied the same standards to the whole industry, you’d probably have to shut it down, and we aren’t applying the same standards to others.”

and

The Chevron leak was less than 0.1 percent of BP’s massive spill and no oil reached shore, raising concern from Chevron and others that the charges may be politically motivated or unfair.

and

Much larger and more damaging spills by Brazilian state-run energy giant Petrobras, which owns 30 percent of the Frade field operated by Chevron where the leak happened, have not led to criminal charges against Petrobras or its executives.

Is all of this fair? It may be too early to tell. The Reuters documents don’t seem to be comprehensive and we haven’t seen the actual charges. For all we know, the issue is really the claim that Chevron may have lied to the government.

But one thing is certain: all of this matters very much. Like it or not, Brazil is on the path to become more of a petro-economy, and if this does not go according to plan, a lot of money will be lost. If you care about the hard numbers behind the Brazilian economy, take your eyes off the football pitch and look deep below the ocean’s surface.

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But in reality, this was a very bad week for economic news in Brazil. We learned that the country’s economy, as measured by GDP, only grew by 2.7 per cent in 2011.  That is compared to 7.5 per cent in 2010.  That is a big slowdown, leading the Central Bank today to make a huge cut (75 basis points) in Brazil’s very-high interest rates.

And this was just after we saw that China revised its own growth predictions downward, which hit the Brazilian stock markets hard. Of course, China is the main external driver of Brazilian growth.

The second half of 2011 was the worst period for Brazil in the last 5 years, and basically didn’t really grow at all.

But does this change Brazil’s long-term prospects? Yes, but perhaps not too much. The world is in deep crisis at the moment – the Eurozone debacle especially, alongside the high price of oil and a threat of war with Iran – and it was impressive Brazil managed even to keep its head above water. Growth is expected to pick back up next year, and almost everyone agrees that interest rates here need to come down sooner or later.

But things are not looking like they did a year ago. It does not seem like Brazil is on an automatic, independent path to superpower status. Getting back on track will likely require some kind of action from the government.

Links:
Why has Brazil been getting richer?
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