The Covid-19 pandemic, economic crisis, and political turbulence have created a “perfect storm” for Brazil, causing a panorama of strong uncertainties for the future of South America’s largest country. Already in April, the Johns Hopkins University predicted today's dramatic scenario. Brazil was a candidate to be one of the most affected countries due to a series of factors: its geographical and demographic dimensions, the urban fabric of the great metropolis with its immense favelas, where assembly is inevitable and sanitary conditions are precarious, the gaps in the public health system, the strong social inequalities. Last but not least, the political framework, with a president, Jair Bolsonaro, considered the last of the global deniers although he tested positive last week. Bolsonaro denied the strength of the pandemic, flaunted the miraculous qualities of hydroxychloroquine, invited his noisy supporters to force their way into hospitals to see for themselves whether the intensive care beds are actually occupied.
Brazil, now, mourns its dead and no one can say exactly when all this will end. In a country of continental dimensions, the contagion curve has strong regional differences Several more waves should be expected before year-end. According to the computer center of the University of Washington, which helped Dr. Fauci to correct the White House's shot at the pandemic that began, Brazil may even surpass the United States in terms of the number of deaths in August. But if the present is dramatic, it is above all the future that is worrying. One wonders how to get out of this storm and what position it will be able to maintain on a global level. Brazil, it is said, is the eternal country of the future, a nation with all the characteristics to transform itself into a great power, but that never manages to become one.
The first scenario to consider is the economic one. The most optimistic forecasts speak of a drop in GDP of 8% for 2020, the most negative ones say 12%. In any case, it will be a very serious blow for those who were laboriously trying to get out of the recession that began in 2016. Unemployment will also increase because informal work, a great social shock absorber in times of crisis, has been pulverized, as shown by the 60 million Brazilians who have applied for the emergency aid allocated by the government. This aid will continue in a reduced form in July and August, but not forever. Domestic consumption, which has always been the driving force of the economy in a very protectionist country, is destined to collapse also because of the high indebtedness of the population; 63 million of the most defaulted debtors who cannot access a loan or a mortgage, except at usurious rates (up to 400% per year).
The ratio of public debt to GDP will reach 96% by 2020, second only to Angola among the 36 emerging countries analysed by the IMF. Even if Brazil's reserves are still solid and the public accounts deficit will remain below 6% of GDP, it is certain that the country will emerge from the pandemic poorer, more indebted and even more unequal. It will, therefore, have even more need to open to the world, but to do so it will have to be able to continue on the path of reform.
Here the political factor comes into play. The leadership of Jair Bolsonaro is being questioned. The continuous clash with the governors, the press and, above all, with the judges of the Supreme Court inflames his supporters but distances him from the moderate electorate that in 2018 had voted him as the only alternative to the possibility of a return of the left. Bolsonaro divides the waters and nobody knows how useful this strategy can be for him in a scenario of severe recession.
At the end of the year there will be a first test with the local elections. The balance in Parliament, the key to governability, must also be observed very carefully. The impeachment of Dilma Rousseff has demonstrated the strength of Congress, so much that many analysts now speak of a semi-presidential republic; the president governs by popular mandate but depends on an increasingly insidious legislative power. Bolsonaro depends on the "centrao”, a dozen or so small parties whose combined power dominates the political landscape in Brasilia.
All of these issues frighten markets. In the first five months of the year foreign investors have withdrawn more than 20 billion euros from Brazil, which has been considered among the most profitable emerging economiesup until last year. In the midst of a pandemic no one likes to take risks and to bet on Brazil in the long term today takes a good dose of courage. To this is added the strong international pressure linked to the fate of the Amazon. In mid-June, 29 major global funds, from Black Rock on down, signed a letter saying they are concerned about the growing deforestation of the largest rainforest on the planet. They quoted the words of Environment Minister Salles, who suggested at a government meeting to move forward on the deregulation of environmental standards by taking advantage of global attention on the pandemic. The government is fully aligned with the big agro-industry, but the framework agreement between Mercosur and the European Union is also at risk because of environmental issues. Brazil's strategic positioning in the trade war between the US and China is also at risk.
Bolsonaro is a deep admirer of Trump, but he cannot forget that the Chinese are the main buyers of Brazilian soya and that they may be the only ones able to invest massively outside their borders in the post-pandemic world. The hug with Trump, moreover, can be fatal if he is not confirmed in the US presidential elections in November. The career diplomats of Itamaraty, the Foreign Ministry, are horrified at the outpouring of Minister Ernesto Araujo, a conservative openly siding with Washington and certainly not liked in Beijing.
Bolsonaro, then, is not at all interested in Latin America or Mercosur and has no sympathy for his colleague in Buenos Aires, Alberto Fernandez; even if Argentina remains a strategic partner for important sectors of Brazilian industry. In a climate that is not very uplifting, however, there are still those who retain a certain optimism. For Ian Bremmer, the founder of Eurasia Group, Brazil has all the credentials to overcome the "Bolsonaro effect" and to not become a global pariah. It is rich in commodities, has a large domestic market and a young, dynamic and digital population. The country may not be a protagonist, but it still has a specific weight to play, even with a very uncertain future.