Brazil: Mass demonstrations highlight economic woes and leave politicians puzzled.

> Event: Demonstrations that started in Sao Paulo on 6 June over an upward adjustment of bus fares have gained enormous momentum, and with the number of protesters booming, so did the number of issues on the agenda.

Over one million people took to the streets on 20 June, denouncing everything from police repression to corruption, the excessive cost of hosting major sporting events (World Cup in 2014, Olympics in 2016), high taxes and poor quality of public transportation, health care, education and public services in general.

Politicians were largely caught by surprise over the extent of public disgruntlement and are now trying to come to grips with it. In an effort to restore calm, various municipalities have revoked the bus fare hikes and president Dilma Roussef has offered a ‘national pact’ consisting of (a referendum on) political reforms, a crackdown on corruption, investments in public transportation, health care and education (the latter two financed by oil royalties) as well as adherence to fiscal responsibility.

> Impact on country risk: Immediate violent escalation of the demonstrations seems rather unlikely. Policy makers have signalled a clear willingness to take the protesters’ grievances to heart and tensions have eased following Dilma Rousseff’s public address. Yet obviously, the unrest is no good news for the incumbent in light of the upcoming presidential elections in 2014.

The widespread dismay over a self-serving ruling class has caused her popularity to plummet from 57% in early June to recently only 30% of people satisfied with the administration. The main opposition Social Democratic Party seems unable to clearly gain from the turn of events however, as it is not perceived as offering a clear alternative to
the ruling Workers’ Party.

Whatever the election outcome, huge challenges clearly lie ahead. It is no coincidence that Brazilians are denouncing societal issues that have been known for years just now, at a time the country is experiencing an economic slowdown.

Confidence is suffering under sluggish growth, high inflation (exacerbated by the recent sharp depreciation of the Real), significant household indebtedness (after a largely credit-driven consumption surge) and a deteriorating fiscal position (S&P put a negative outlook on Brazil’s sovereign rating on 7 June).

As high-growth expectations now seem out of line with low-growth reality, this fuels frustration among Brazilians and especially so among the estimated 35 million that have escaped poverty over the last decade to join the lower middle class. They have different priorities now than in the past and have likely become more demanding altogether (given that they pay taxes now).

Over the coming years it will be of crucial importance for Brazilian politicians to effectively respond to these demands, while avoiding a further weakening of the fiscal position. So both political and economic stability are at stake. This will be an extraordinary challenge indeed, though not necessarily a contradictory one given the huge inefficiencies in Brazilian institutions and potential for productive investment to clear infrastructural bottlenecks.

analyst: Sebastian Vanderlinden, ONDD Belgium

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