Strong recession in Brazil amid coronavirus and Bolsonaro’s disaster
The sectors that suffered the greatest impact from the contraction were industry (-12.3%) and services (-9.7%), which together represent 95% of GDP
While Brazil is rapidly approaching four million infections from COVID-19, it exceeds 122,000 deaths and the Amazon suffers indiscriminate deforestation under the eye of the Jair Bolsonaro regime; the economy of the South American giant has entered a severe recession that sets off the alarms in all sectors of the country.
The Brazilian Institute of Geography and Statistics (IBGE) reported last Tuesday, September 1, that the Brazilian economy registered a record contraction of 9.7% in the second quarter compared to the first, when it had already fallen 2.5% due to the coronavirus, formally entering a recession.
This situation occurs precisely while Bolsonaro announced an extension of state aid for the pandemic, although with a significant cut of 50% less than what they were paying so far.
According to a report on the Ámbito portal, the drop exceeds the 9.2% estimated by 49 economists consulted by the economic daily journal Valor; But it is lower than that expected in May (-11.1%), thanks to last-minute aid that Bolsonaro decided to distribute almost against his will, to appease the effects of the pandemic.
In fact, the decision to extend the economic support provoked the anger of the liberal sectors against Bolsonaro, who consider this unnecessary “public spending”.
The recession in Brazil, considered the largest economy in Latin America, is evident when seeing the collapse of its Gross Domestic Product (GDP). In the first semester, the decline was 5.9%; while in the second quarter it was 11.4%, detailed the IBGE.
The contraction in the second quarter occurred “at the height of social isolation, when various economic activities were partially or totally paralyzed to face the pandemic”, explained the coordinator of IBGE National Accounts, Rebeca Palis.
The most affected in Brazil: Industry and services
Brazil is the second most affected country in the world in absolute terms by the coronavirus, only surpassed by the United States.
The sectors that suffered the greatest impact from the contraction were industry (-12.3%) and services (-9.7%), which together represent 95% of Brazil’s GDP. The only sector that grew was agriculture, with a minimum increase of 0.4%, driven mainly by the production of soybeans and coffee.
The collapse is massive, but “in today’s world, it seems very reasonable”, said Margarida Gutiérrez, professor of macroeconomics at the Coppead Institute of the Federal University of Rio de Janeiro (UFRJ), to AFP.
Despite this, the collapse of the South American giant is still much lower than that of other countries in the region such as Mexico (-17.1% in the second quarter) and Chile (-13.4%), or that of developed economies such as United Kingdom (-20.4%), Spain (-18.5%) and France (-13.8%), all affected by the impact of the coronavirus crisis.
According to experts consulted by the Folha de S. Paulo newspaper, the recession period is expected to be short but of record intensity, considering the data from the last four decades.
The Bolsonaro government’s recipe for not falling into the abyss was to make confinement measures more flexible and activate production — despite the hard blow that this meant for millions of Brazilians affected by COVID-19 — and provide a subsidy of 600 reais (110 dollars) to 66.4 million Brazilians, and in the cases of single women and heads of families, 1,200 reais (220 dollars).
Destroy the Bolsa Familia plan
Bolsonaro’s subsidy, distributed monthly since April to try to alleviate the crisis that generated the destruction of more than nine million jobs, will now be 50% lower and, according to the far-right, will replace the “Bolsa Familia” plan, created by former president Luiz Inácio Lula da Silva, which brings food to the neediest families.
The “Bolsa Familia” plan led Brazil to become a global power. Now, according to the Bolsonaro regime, it will be replaced by the “Renta Brasil” plan in 2021, and will have as a precedent the subsidy made by Bolsonaro.
This could mean that the Government’s aid to families living in poverty becomes a minimum contribution, which would translate into a cut in public spending that it would try to disguise at the expense of the demands made by the liberal sectors.
Minutes after the entry of Brazil into recession was public knowledge, President Bolsonaro announced the extension of the aforementioned subsidy but conditional on 300 reais less.
“Based on the fiscal responsibility law, we decided to maintain the aid but set it at 300 reais”, Bolsonaro said from the Planalto Palace, after meeting with government ministers and legislators.
“It is not a very large value but basically we want to serve the population,” he said, which according to him is 50% higher than the Bolsa Familia social plan.
According to polls, this aid raised Bolsonaro’s popularity by seven points despite the fact that the pandemic has already left more than 122,000 dead in Brazil and that the ultra-conservative is widely criticized for campaigning strongly against prevention measures.
In a message to the financial sector and pressured by the Minister of Economy, Paulo Guedes, Bolsonaro also said that he will send the administrative reform project to Congress, with which he intends to modify the job stability of public officials who enter through competition.
“The changes are based on the new employees who enter to work in the State”, said Minister Guedes, who cited “meritocracy” as a value to take into account in this reform.
So far, the situation in Brazil remains quite uncertain, especially due to what will be the true negative effect of the pandemic and the decisions of the far-right regime for one of the most important economies on the continent, with one of the largest populations on the planet.
