In late 2014, Brazil seemed on the verge of a meltdown. Its economy had grown a mere 0.1 percent that year, as its currency (the real) dropped like a stone and business confidence plummeted. In response, in November of that year Brazilian President Dilma Rousseff turned to a Chicago-trained technocrat — a common antidote among Latin American leaders. Domestic and international investors welcomed the appointment of Joaquim Levy, a former banker and fiscal hawk, to lead the finance ministry, but they acknowledged he would have his work cut out for him. If Levy hoped to enact the drastic fiscal cuts and structural reforms needed to fix the careening economy, he would have to first overcome the resistance of not only a fractious congress, but also many members of Rousseff’s leftist Partido dos Trabalhadores (PT) and her cabinet.
Success would ultimately elude Levy. In December 2015, he quit, handing the ministry over to Nelson Barbosa, another well-respected economist. But Barbosa lacks Levy’s credibility among investors. And the task before him has only become more unenviable. He will have to push through his predecessor’s stalled reforms, while turning around an economy that suffered a GDP contraction of 3.7 percent in 2015, staving off potential debt crisis, stabilizing the real, and avoiding what analysts predict could become Brazil’s worst crisis since 1901.
The first step to fixing Brazil’s crisis will have to involve recognizing that the rot goes much deeper than it might seem. Brazil’s troubles began with the downturn in the global commodity markets, which once bolstered the country. But the roots of the malaise trace much farther, to a historically autarkic economic model, a political system hobbled and corrupted by party factionalism and localism, and a constitutional carnaval of guarantees for social rights and payouts.
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