Editor's Note: The 2016 Summer Olympics have begun in Rio de Janeiro, fixing the international spotlight on Brazil for 16 days as the world's best athletes compete to bring home the gold. But although many media outlets are closely tracking the games, fewer are covering the political, economic and security issues facing the Olympics' host country. To address this gap, Stratfor has compiled a list of analyses on Brazil to give readers a better understanding of the events taking place behind the scenes of the Summer Games.
July 31, 2016: Much ado has been made about Brazil's precarious political situation ahead of the 2016 Summer Olympics. But how did the country come to be in such a tight spot? In large part the answer lies in the massive number of political parties active in Brazil, which has led to a particularly fragmented congress. It is an old trend, observed most famously by Brazilian political scientist Sergio Abranches in a 1988 paper titled "Coalition Presidentialism: The Brazilian lnstitutional Dilemma." According to Abranches, one of Brazil's most serious institutional challenges is what he deemed to be a "coalitional presidentialism" — a system by which the president must form and govern over a multiparty coalition, which becomes more difficult the more parties are involved.
Brazil's was a concerning political model, but a temporary one, Abranches argued. He believed that as democracy strengthened in the country, elections would limit the number of viable political parties. But he was wrong. Since Abranches made that prediction in 1988, the number of political parties with more than 5 percent representation in congress has doubled, rising from four to eight. In the same period, the Brazilian congress impeached former President Fernando Collor de Mello in 1992, and it is now in the process of impeaching President Dilma Rousseff, who will likely be forced out of office by the end of August. This is not to say the proliferation of political parties actually caused these impeachments. But it certainly made them more difficult for the executive powers to manage, and impeachment more difficult to avoid.
April 28, 2016: Statistically, far more people will be affected by street crime during the Olympics than by terrorism. The murder rate in Brazil is four times higher than it is in the United States, according to the U.S. Department of State, and the incidence of other crimes in the country is commensurately elevated. For instance, kidnapping is a serious problem in Brazil. Frequently, gangs that specialize in express or lightning kidnappings target foreigners who have had too much to drink. Some victims of these "quicknappings" have been beaten or raped.
Events such as the Olympics tend to draw pickpockets, con artists, muggers, prostitutes and other criminals from all over the country and region. During the games, Brazilian criminals will target citizens and foreign visitors, especially near attractions such as beaches, bars, nightclubs and hotels. And criminals come in all shapes and sizes.
April 16, 2016: For the past two years, Brazil has been mired in the costliest corruption scandal ever uncovered in a democracy. Evidence surfaced in 2014 that contractors in Brazil had formed an alliance to overbid on projects for government-owned energy company Petroleo Brasileiro (Petrobras). Contractors pocketed the extra cash and bribed politicians and Petrobras executives to keep quiet. The scandal — the investigation of which came to be known as "Operation Carwash" — was so blatant and implicated such prominent political figures that it shocked Brazil, a country accustomed to high-level corruption. And now the odds that Brazil's president, Dilma Rousseff, will survive the fallout are looking slimmer and slimmer.
Brazil's unfolding political tribulations are a significant departure from its recent trajectory. Just a couple of years ago, Brazil seemed destined for greatness. The biggest economy in South America, Brazil is part of the so-called BRICS (Brazil, Russia, India, China and South Africa), a group of emerging economies highlighted for their massive growth potential. Social progress accompanied its economic advances. The World Bank praised the country for reducing inequality and raising the standard of living for its poorest citizens from 2003 to 2014. So how did Brazil fall so far?
During Brazil's rapid economic climb, abundant cash combined with the country's historical elitism to encourage rampant corruption. And despite the social strides that were made while Brazil prospered, inequality has remained a problem. Once the economy began to falter, support for the government began to decline, making revelations of this corruption all the more damaging for the country's rulers. Without the cushion of high economic growth, the Brazilian government is being forced to confront the long-term structural problems caused by its geography, high spending and corruption.
Feb. 18, 2016: Argentina and Brazil are once again on diverging political and economic paths. But unlike in the past, this time their roles are reversed. Both countries have always had close historical, trade and political ties. As the two largest economies on the South American continent, the nations have enjoyed political influence and are at the heart of the Common Market of the South, one of Latin America's largest trading blocs. Both also share similar long-term economic problems. Relying on commodity exports for dollar-denominated income — but lacking the capital of more industrialized nations — has caused Buenos Aires and Brasilia to depend on direct foreign investment to finance major economic projects and growth.
Yet Argentina is now setting the stage to leave its lengthy period of economic stagnation and political populism behind, while Brazil is momentarily suffering from economic contraction, slow growth and political instability. Both countries are suffering the consequences of a slowing Chinese economy and each other's shaky economic growth. But political turmoil in Brazil, such as the impeachment drive against Brazilian President Dilma Rousseff as well as her unstable coalition, stands in contrast to relative political calm in Buenos Aires. Consequently, Argentina's next several years are poised to be far less politically eventful and less economically problematic than for Brazil.
Jan. 27, 2015: Times are hard for Brazil, whose economic growth has slowed to near zero and whose investment climate is not as promising as it was in the previous decade. Having eked out a victory in the October presidential election, Rousseff and her administration have formed a new plan intended to revamp the economy. A new export plan will be put forth to offset the country's trade deficit from 2014 — Brazil's first deficit in a decade — but it also includes tax and interest rate hikes, social and unemployment benefit reductions, and other socially and politically sensitive measures.
However, these reforms come at a time when social activism and protests are on the rise in Brazil. A public transportation cost hike in mid-2013 triggered protests that evolved to include broader issuessuch as government corruption, police brutality, and the state of public services like health care and education. In June there were more than 2 million people protesting across the country, with over 100,000 participating in each of the large metro areas of Rio de Janeiro, Sao Paulo, Belo Horizonte and Manaus.
Jan. 19, 2015: In recent years, Brazil has experienced a significant slowdown of its once-strong economic growth. In 2010, Brazilian gross domestic product growth was 7.5 percent. By 2014, it had dropped to an estimated 0.1 percent. One of the key drivers of this decline has been a decrease in Brazil's exports.
Several factors have contributed to Brazil's falloff in exports in recent years. Prices on world markets for iron ore, crude oil, soybeans and other commodities have fallen, with China playing a particularly strong role in Brazil's slowdown. In 2013, nearly 83 percent of Brazil's exports to China were in commodities, including soybeans, iron ore and crude oil. But from 2011 to 2013, exports of these commodities to China rose by only $1.5 billion, or 3.8 percent overall. In 2014, the overall value of trade between Brazil and China was down by 6 percent compared with the previous year.
Another factor is that Brazil's main economic partner in Latin America, Argentina, has been gradually decreasing its imports from Brazil. Argentina has imposed restrictions because of its own economic problems. Brazil's exports to Argentina declined by 27.2 percent in 2014, and overall trade with Argentina dropped by 21.2 percent. Brazil's automotive sector was hit particularly hard and was responsible for over 60 percent of the drop in bilateral trade. Brazil has also expressed concern about the size of Chinese exports to Argentina. The Brazilian government complained that while Brazilian exports to Argentina have dropped over 20 percent, Chinese imports dropped only 4 percent. There is a sense in Brazil that Argentina has not been imposing trade restrictions on Chinese imports to the same degree as those imposed on Brazil.
May 13, 2012: Brazil's biggest problem — which began with the colonial settlement process and continues to the current day — is that it is simply not capable of growth that is both sustained and stable. Economic growth anywhere in the world is inflationary: Demand for arable land, labor, transport, capital and resources pushes the prices of all of these inputs up. Growth in most places can continue until those inflationary pressures build and eventually overtake any potential benefit of that growth. At that point, growth collapses due to higher costs and a recession sets in. Brazil's burden to bear is that land, labor, transport infrastructure and capital exist in such extreme scarcity in Brazil that any economic growth almost instantly turns inflationary.
To this day, Brazil has very few major highways and railways because even where the topography does allow for the possibility, the costs still are much higher than in flatter lands farther south. The country lacks a major coastal road system, as the escarpment is simply too steep and too close to the coast. Following the Brazilian coastline makes clear how Brazil's coastal roads are almost exclusively two-lane, and the coastal cities — while dramatic — are tiny and crammed into whatever pockets of land they can find. And most of the country is still without a rail network; much of that soy, corn and rice that the country has become famous for exporting reaches the country's ports by truck, the most expensive way to transport bulk goods.
The lack of economies of scale and the difficulty of integrating local infrastructure forces bottlenecks. The worst of those bottlenecks occur where the coastal enclaves interact with the outside world — in Brazil's ports — and it is here that Brazil faces the biggest limiting factor in achieving economic breakout. Brazil is correctly thought of as a major exporter of any number of raw commodities, but the hostility of its geography to shipping and the inability of its cities to integrate have curtailed port development drastically.