Photographer: Dado Galdieri/Bloomberg

Brazil’s Highs and Lows

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It’s 2009 and Brazil’s beloved president, Luiz Inacio Lula da Silva, proclaims the nation’s biggest oil discovery its “passport to the future.” Rio de Janeiro is awarded the 2016 Olympics on top of the 2014 World Cup, and Brazilians see both as belated recognition of their rising international standing. The global financial crisis is a hiccup for effervescent Brazil as a commodity boom surges. Fast forward to today and unemployment remains in the double digits as the economy emerges from its worst recession on record. Lula — one of the most popular presidents in Brazilian history — is ordered to prison. His conviction on graft and money-laundering charges was part of a corruption investigation, dubbed Carwash, that started at the state-run oil colossus Petrobras and expanded to ensnare members of the business and political elite. Lula's protege and successor, Dilma Rousseff, was removed from office after being  impeached for bypassing Congress to finance government spending. And the current president, Michel Temer, the former vice president who succeeded Rousseff, has survived a massive corruption scandal himself, at least for the time being. What went wrong? Can Brazil get its magic back?

The Situation

A Brazilian court in January unanimously upheld Lula's conviction, and a federal judge in April ordered him to begin a 12-year prison sentence. While Lula was appealing his conviction, he also was campaigning to become president again, but the judge’s order likely forecloses his return to power. He could, however, still influence October’s elections. He has led in opinion polls, promising to undo many of President Temer’s market-friendly policies. Temer’s allies in 2017 defeated two motions in the lower house of Congress that would have put the president on trial for corruption and illegal campaign financing. The votes paved the way for him to turn his attention to economic reforms, although he still faces accusations in a third investigation. He overhauled labor laws and won a constitutional amendment to limit public spending and help put public finances in order. Temer then set his sights on pension reform, a plan investors welcomed but that he ultimately ditched amid political opposition. The International Monetary Fund estimates that Latin America’s largest economy will grow 1.9 percent in 2018, a far cry from the pace during the commodities boom. 


The Background

Brazil has suffered boom-and-bust cycles and political instability since independence from Portugal in 1822. Almost half its 2017 exports were raw products, so its prosperity is sensitive to the vagaries of the commodities markets. On paper, Brazil looks like a powerhouse. It’s the fifth-largest country in the world, by land mass and population. Its offshore oil reserves include the Western Hemisphere’s biggest discovery since 1976. It has the second-largest iron ore reserves, is the second-largest producer of soybeans and third-largest of corn. On the other hand, its wealth distribution remains among the most unequal. Good times did provide cash to beef up the Bolsa Familia social-welfare program begun by Lula and that became an international model for the eradication of poverty. The new middle class went shopping, boosting growth. But with commodity prices at lower levels and industry sputtering, the model petered out. In 2017, the economy recorded its first growth in two years. Business investment, which the government hopes will become the economy’s new engine, rose in the fourth quarter of 2017 by the most in more than four years. But as a percentage of gross domestic product, it remains about one-third that of China.

The Argument

Is Temer putting Brazil back on a solid footing? Even with a constitutional amendment in hand allowing him to limit public expenses for up to 20 years, it remains to be seen whether he can control spending. His intention to repair the overburdened social-security system appears to have been shelved, with legislators increasingly hesitant to pass unpopular measures as Brazil draws closer to October elections. Temer can continue creating a more business-friendly environment by implementing some micro-economic reforms by presidential decree, but he needs congressional approval for major budget measures. Both Congress and the Temer administration have approval ratings below 10 percent. And there’s no reason to think investigators have unearthed the full scope of high-level corruption in Brazil. Carwash has not only produced scores of defendants, it has exposed a system of institutionalized corruption connecting Brazil’s largest companies and political parties.

The Reference Shelf

  • Bloomberg interviews Brazil’s President Michel Temer.
  • A Bloomberg News article on the Brazilian port at the heart of the last remaining corruption investigation threatening Temer. 
  • A Bloomberg QuickTake explains why Lula may not be eligible to run for office now. And another explains the Carwash scandal. 
  • A 2015 report published by the Center for Economic and Policy Research concludes that Brazil’s slump resulted more from policy choices than external conditions.
  • A 2016 Congressional Research Service report provides background on Brazil’s politics
  • A Businessweek web comic on the Petrobras corruption scandal. 

    First published March 27, 2014

    To contact the writer of this QuickTake:
    David Biller in Rio De Janeiro at

    To contact the editor responsible for this QuickTake:
    Paula Dwyer at

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