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The Brazilian economic model is broken: reliance on strong export volumes of commodities priced to meet voracious Chinese demand and a parallel boom in consumer growth has caught up with the country. Commodity prices are on the floor and its consumers are broke – overwhelmed by large debts and larger interest rates levied on those debts.
A recession has hit. The political paralysis caused by the fallout of corruption scandals and a president who has had to embrace the market-friendly policies (which she dismissed when suggested by her opponents in last year’s elections) have meant a loss of popular support and narrowing of the political base. That will only prolong the downturn. The structural reforms needed to lower government expenditures – and lend fiscal support to what is currently monetary policy’s single-handed attack on 9% inflation – are unlikely in the current administration of Dilma Rousseff.
So in June the government did what it could and announced a fresh wave of awards for private-sector concessions in a bid to try to provide an infrastructure-led stimulus to the economy. Importantly, the government appears to have begun listening to the private sector: sponsors have been demanding higher internal rates of return to make these concessions attractive – particularly in the riskier areas of ports and rail.
