As Dilma Rousseff steps aside from Brazil's presidency and Michel Temer ascends to the post, it's a moment of reckoning for a nation that's in the throes of recession, high inflation and a near-record budget deficit.
The charts below detail the road that led Brazil into its economic predicament — and show that Temer's administration would have to oversee a major comeback for Brazil to recapture its former prosperity.
A decade ago, Brazil was on the up-and-up, having completed a macroeconomic adjustment during Luiz Inacio Lula da Silva's first presidential term. Renewed stability coincided with the commodities boom, and higher exports plus consumption by an emerging middle class boosted growth to an average 4.1 percent during Lula's eight years in power. Brazil earned an investment-grade credit rating for the first time in its history.
Brazil's government spent to stimulate the economy during the global financial crisis. That prompted the economy to quickly re-emerge from a slight recession, and in 2010 it posted its strongest growth in three decades. It also put the nation's budget on an unsustainable path. Still, the exceptional expansion helped Lula's anointed successor, Rousseff, sweep into office.
"Things thereafter deteriorated extraordinarily rapidly with the turnaround in terms of trade, the end of the big commodity boom and just monumental policy mistakes in 2012, 2013 and 2014,'' Paulo Vieira da Cunha, partner at Verbank Consulting and a former central bank director, said by phone.
Brazil pushed down interest rates to their lowest level ever, artificially repressed inflation, and extended massive tax breaks to companies — but failed to stimulate business confidence. When the government began allowing regulated prices to rise starting in 2015, inflation shot into the double-digits. By the end of that year, GDP per capita in dollar terms had returned to 2009 levels, Brazil had lost its treasured investment-grade rating, and massive layoffs sent unemployment spiking, which further depressed demand.
Payment of billions of debt to state banks torpedoed government finances. Rousseff's ouster is based on allegations that her administration delayed that payment to mask a swelling deficit.
Enter Temer, who assumes the presidency during Rousseff's impeachment trial in the Senate for a period of as long as 180 days. He's tasked with slowing consumer price increases, restoring government finances and regenerating investor confidence. Some believe he can do it: Banks including BNP Paribas, Banco Fibra and Itau Unibanco already boosted their 2017 growth outlooks to as high as 2.1 percent in anticipation of the takeover. The International Monetary Fund still forecasts stagnation.
As the data illustrate, making Brazil's future resemble its past could be a tall order.