Just days after the end of the hugely expensive Olympic Games came to a close in Brazil, the government appealed on Wednesday to policymakers to approve an unpopular cap on public spending to pull the former emerging-market star out of its worst recession in decades.
That is likely to reignite public anger over the cost of the Games at a time when the economy is struggling and public services are already stretched to breaking point. Getting approval for the amendment is expected to be a difficult battle for the interim president Michel Temer.
Policymakers from Mr Temer’s own alliance in Congress have criticised the proposed cap as potentially damaging to public health and education in a country where many schools are crumbling and hospitals lack even basic supplies, a situation exacerbated, opponents say, by the vast amount of public money that was diverted into the infrasture spending for the Olympics.
“We need to be clear on the severity of the situation we are currently in. We need to be clear that if we don’t do anything we will be blamed by history,” the planning minister Dyogo Oliveira told policymakers.
So what benefits can Brazilians expect as a legacy from the Games? Here, the UAE-based Brazilian finance and tax expert Natasha Maggessi from Guardian Wealth Management talks to The National about the aftereffects of the world’s biggest sporting event:
“It’s been a controversial event since the very first bid back in 2009, which was practically a romanced appeal positioning South America as a ‘poor sister’ deserving of a chance from International Olympic Committee decision-makers. However, it was very much a different backdrop in Brazil then – socially, politically and economically-speaking. The country was on its climb back to 7.5 per cent economic growth and inflation was below the central bank’s target. The currency was also strong, which helped Brazil’s Bovespa become the world’s best performing stock market in 2009.
“Now it all seems a distant memory, for today’s reality showcases a more bearish outlook. The Brazilian economy has accumulated losses in five consecutive quarters and the country’s recession has hit its third year, likely to be the longest in Brazil’s history. The IMF confirms that the country took a nosedive into a profound recession, which leads to collateral effects such as unemployment rates increasing, spiralling public debt and instability.
“Because of this, Brazilians were never that enthusiastic about hosting the games. It’s quite difficult to make the public understand that they don’t stand a chance to see a much-needed new school built or even more hospital beds. But instead a new gigantic stadium with no post-use whatsoever will be built and, of course, over budget and embezzled.
The total bill is not yet clear but experts estimate something around US$39 billion, half spent on infrastructure. Money that most Brazilian citizens would consider better invested in hospitals, schools and public infrastructure. In addition, the Brazilian government authorised an $850 million loan for Rio to help pay for Olympic infrastructure and security. After which, the city declared a state of financial emergency.
For the Paralympics, which open on September 6, the scenario is even more difficult, Rio’s organising committee has not raised enough money to fund the event due to the recession and a general lack of demand from sports fans. At this stage some athletes do not even have travel grants.
After the start of the main event there was certainly a more positive feeling towards the games, with a colourful opening ceremony and some gold medals, but that does not change the reality of the Brazilian situation and the major internal problems.
But will the Olympics help everyday people and their personal finances?
“No”, says Ms Maggessi. “It may help a few individuals profiting from Olympic tourism with things such as accommodation rental, transport, small commerce, etc. However, this has been constrained by fears of the Zika virus, the instilled violence and political turmoil amidst a suspended president, broken parties and impeachment trial.
“But the evidence indicates Rio is unlikely to receive a good return on its heavy spending. The benefits after the initial period are just too small to generate a significant or positive impact, mainly because of the huge size of the Brazilian economy. For example, around 13,000 direct and 40,000 indirect jobs were created as a result of the games, but with a population of 200 million, it barely makes a ripple in the pond.”
Yet the economic outlook may not all be doom and gloom. Brazil’s stock market has performed better than expected recently, having risen 35 per cent so far this year in local currency terms. In dollars the gains have been even greater as the MSCI Brazil Index returned 62 per cent year to date – adding 8 per cent since the Olympics opening ceremony. Many Brazilian stocks have seen bottoms providing good investment opportunities for those who can wait.
Some may say that means Brazil is over the worst of its financial depression but, even if that is the cae, it still has a long way to go to see growth.
Just like a young athlete dreaming about hitting the big time, Brazil’s rise back to the top will probably take more than just four years.
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