In a 2008 interview, then Brazilian PresidentLuizInácioLuladaSilva offered me his formula for success: “I allow the rich to earn money with their investments and I allow the poor to participate in that economic growth.”
Lula’s capitalist-socialist policies, and soaring commodities prices, led Brazil to an astonishing boom in the2000s. By 2010, as Lula was leaving office, the country was the world’s sixth-largest economy, and 40 million people were added to its middle class.
It was a confident global player.
Now it’s a foundering cautionary tale.
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Brazil is suddenly mired in what may be its worst recession since the1930s. It’s also wrestling with gargantuan corruption scandals, including a $3 billionoutrage at the state-run oil company,Petrobras. Meanwhile, Lula’s hand-picked successor, PresidentDilmaRousseff, may face impeachment.
As a result, when Miami realtorFabianaPimentavisits her native Brazil today, she finds a lot more bust than boom: “I see a lot of worry on people’s faces.”
Last monthPimentamade a business trip to the Brazilian city ofBeloHorizonte. And as she drove around, she too got worried.
“The main thing I saw was a lot of for-sale signs on all the properties,” saysPimenta, who is with the Fortune International firm. “But nobody’s buying right now. People are not investing in anything in Brazil.”
Pimenta’s clients are Brazilians looking for properties in South Florida – that army of brasileirobuyers who rescued Miami real estate during our Great Recession. But now, a small handful of them are looking to sell real estate they already own here.
In Miami last week,Pimentamet withSãoPaulo investor CliveBotelho. Because the Brazilian real has fallen so badly against the U.S. dollar,Botelhois unloading a two-bedroom luxury condo onBrickellAvenue. And he says his fellow Brazilians now realize their national dream is indefinitely on hold.
“Confidence deteriorates,” saysBotelho, “and families lose their dreams. People in Brazil nowadays are on the defensive, not in their dreams.”
Or asBotelho’sinvestment partner RonaldoSilvestreputs it: “The feeling in general is terrible.”
So who’s to blame for this Amazon-size collapse? For starters, Lula and Brazil are: During the good times they could have fixed serious structural problems, from heavy taxation and bloated bureaucracy to dismal education and even more dismal infrastructure.
They simply didn’t.
“The great opportunity to develop was basically missed,” saysSãoPaulo native PauloSotero, director of the Brazil Institute at the Woodrow Wilson Center in Washington D.C.
“Instead of using that moment to invest in growing competitiveness, Brazil basically decided it was going to surf that nice wave of prosperity.”
But most economists say the chief culprit is PresidentRousseff, and for good reason.
Rousseff is a smart economist, and her urban guerrilla work in the 1960s and 70s against Brazil’s brutal military dictatorship – which tortured her – is laudable. So are her anti-corruption policies.
ButRousseff and Lula's Workers Party ditched his pragmatic leftism for dogmatic leftism – that almost always disastrous belief “that the state is the main driver of the economy,” saysSotero, “and not the markets.”
So government overspending has wrecked Brazil’s public finances – and the budget shenanigansRousseffallegedly used to cover up that fact could get her thrown out of office. But the head of Brazil’s Congress, Eduardo da Cunha– who controls the impeachment process – is himself accused of corruption.
“In the meantime,” saysSotero, “Brazil is in gridlock. We cannot move on [fixing] the economy.”
BRAZILIAN PURGATORY
That could prolong the recession – which is bad news for South Florida. Brazil is our top foreign trade partner and a big source of tourism here.
But as we see less Brazilian commerce, we may see more Brazilianémigrés.
“Higher unemployment will likely increase violent crime in Brazil,” says ArmandoCastelar, an economist at theGetulioVargas Foundation in Rio de Janeiro. “That can be a force for people to move families and try to move their assets abroad. And obviously Florida always is a possibility.”
Pimenta, the Miami realtor, says that’s already influencing many of her clients to look not just for vacation properties here but for something more permanent.
“Now they’re buying with that Plan B in mind,” she says, “having a place where they can start a new life.”
Still,Soteroof the Brazil Institute says the fallen South American giant will emerge stronger from this disaster – especially its democracy. He points to Brazil’s judicial system, which used to be a source of ridicule but is finally prosecuting entrenched corruption.
“I think Brazil is going to be the country everybody thought it was going to be,” saysSotero. “But to get there, we are in a sort of purgatory.”
That hardly squares with Lula's swaggering declaration that “God is Brazilian.” Either way, Brazil will be hosting the Olympics in that purgatory next summer.
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