Brazil and the Summer Olympics

Precisely five months from now, on August 5th, the 2016 summer Olympic games will open in Brazil – in Rio de Janeiro.

In theory.  No, actually, I think they will open…but the world will ‘see’ a very different Brazil than when they were awarded the Olympics about 7 years ago.

Back in 2009, when Brazil won the right to host the games, their economy was booming. The first South American country to be honored as host, Brazil was a rising star on the world stage. Investment and economic experts told us they exemplified the path emerging countries can – and should – take to long-term growth, economic prosperity and a greater standard of living for their citizens. Their commodity export boom (primarily to China) fueled an almost 4% annual GDP expansion between 2001 and 2011 and with a low inflation rate.

Boy have things changed. To a staggering extent:

• Per the ‘Brazilian Institute of Geography and Statistics,’ or IBGE, in 2015 GDP shrunk by 3.8%. And there’s no end in sight. Analysts in their central bank expect at least a 2.5% contraction in 2016. Their currency, the Brazilian Real, has devalued about 100% in the last 3 years. And inflation is running over 10% per year. Their ‘policy rate’ of interest is about 14.5% – racking up deficits at amazing speed: In 2015 alone, their national debt grew by over 10%.
• Last week Moody’s put the country on ‘credit watch,’ signaling they may soon cut Brazil’s ‘Baa3’ rating (the lowest ‘investment grade’ rating) into the ‘junk’ category.
• Of course, we’ve all heard about the Zika virus. Now positively linked to birth defects and neurological disorders, fears are growing the outbreak could hurt ‘international tourism’.  Yep.
• Shall we throw in a natural disaster?  Brazil finds itself in the middle of the worst drought in 80 years.   For over 3 years now, the water crisis continues.  Water reservoirs in the São Paulo area were at less than 20% capacity in May.
• Last but not least, Brazil’s president, Dilma Rousseff, is embroiled in impeachment proceedings.
• Could it get any worse? Yep: Jumping from the proverbial frying pan into the fire, Ms. Rousseff’s campaign strategist, João Santana, was jailed in February on accusations he’s involved in the Petrobras bribery scandal. Questions have now been raised about how she funded her 2010 and 2014 campaigns. Ouch.

Let’s face facts:  Today, Brazil feels more like a Telenovela than a country.

Let the games begin!

• Terry Liebman