Brazil, heading for the lost decade

Brazil, the giant with a bright future that never quite arrived, will close in 2020 the worst decade in more than a century after spending seven years trapped in a maze of political and economic crises currently aggravated by the pandemic.

The most optimistic projections predict a 6.5% drop in Gross Domestic Product (GDP) in 2020, while the International Monetary Fund (IMF) raises the drop to 9.1% as a result of the COVID-19 crisis.

If the bad forecasts come true, the ninth world economy will end 2011-2020 with an average annual contraction of between 0.1% and 0.3%, according to the latest estimates by the Brazilian Institute of Economics of the Getúlio Vargas Foundation (Ibre/FGV).

If this is the case, the South American giant will have its second "lost" decade in the last 40 years, after that of 1981-1990, despite having huge hydrocarbon reserves and having one of the most thriving agricultural sectors on the planet.

At that time, the country registered the lowest growth in the historical series (1.6%) due to hyperinflation and a series of external crises in the midst of internal political turbulence - in 1985 the transition to democracy was made after 21 years of military dictatorship.

"Although the coronavirus crisis had not yet arrived, February's projections indicated that GDP would grow by 2% this year. Even so, it would be a lost decade, the worst in the last 120 years," Marcel Balassiano, the author of the FGV study, told EFE.

At the beginning of the decade, Brazil, then governed by leftist Luiz Inácio Lula da Silva, aspired to become a world power.

Like other emerging countries, the country hardly felt the global crisis of 2008, and after a timid contraction in 2009, its economy advanced by 7.5% in 2010 thanks to the "boom" in raw materials.

Between 2011 and 2013 growth was more moderate, with a real average rate of 3% per year, but in 2014, during the government of Dilma Rousseff - also on the left - the economy began to show signs of weakness.

The economic meltdown came in 2015 and 2016, when GDP collapsed by 7 per cent, while in the following three years the recovery has been slow and gradual, with growth of about 1 per cent per year.

The market then pinned its hopes on President Jair Bolsonaro's liberal agenda, but the pandemic has shattered the plans of Economy Minister Paulo Guedes, a disciple of the Chicago School, a paradigm of economic liberalism that favors reducing the role of the state.

Expectations of growth of more than 2% for this year vanished in the blink of an eye. "For seven years the economy has only been moving backwards and internal factors have been the main culprits for that lost decade," added Balassiano.

The world, meanwhile, will grow between 2011 and 2020 an annual average of nearly 3% thanks to the emerging economies, led by China, despite the downturn this year by the coronavirus crisis.

According to the study's calculations, Latin America and the Caribbean will close 2020 with a real average growth rate of 0.4% over the period.

"The weak performance of Latin America is linked to the poor performance of Brazil," whose weight in the region's economy has been 34.5% in the decade, the economist stressed.

Since 2014, when the Lava Jato corruption scheme exploded, the crisis and institutional upheaval have marked the trajectory of Brazil, a country that has since remained without a defined scenario on the political and economic horizon.

The numerous corruption scandals that led to the imprisonment of some of Brazil's most important businessmen and politicians, such as Lula da Silva, were compounded by Rousseff's dismissal in 2016 and a turbulent electoral campaign that culminated in the election of ultra-right-wing Jair Bolsonaro as president in 2018.

Doubts about the country's direction intensified this year, with several crises that have had Bolsonaro at their core, reaching levels never before seen with the coronavirus.

According to a ranking prepared by economist Anna Carolina Lemos Gouveia, based on data from the Economic Policy Uncertainty Project, in April Brazil was the country with the most uncertainty among a total of 20 economies analyzed.

Although reforms like the pension reform were approved in 2019 - which will save the public coffers US$200 billion over the next decade - turbulence has surfaced in 2020 and has accelerated capital flight from the Latin American giant.

According to the latest figures from the Central Bank, foreign direct investment fell by almost 35% in the five months of 2020 compared to the same period in 2019.