OLGA DEMETRI | April 14th, 2016

Brazil on the Brink

In Levick

Brazil is in turmoil. With a faltering economy and a president facing possible impeachment, it is a country on a brink of a far-reaching crisis that threatens not only its political future, but its long-term economic viability. In fact, the government data on Latin America’s largest economy is alarming. In 2015, the Brazilian economy shrank 3.8 percent, the biggest annual drop since 1990 and one of the longest recorded recessions since the 1930s.

Brazil is most certainly at a cross-road; the next few weeks will determine Brazil’s future. As Latin America’s most populous nation, what happens in Brazil has wider implications for the region, as well as a potential impact on the U.S. With the Olympic Games taking place this August, the eyes of the world should be focused on what happens next.

In the coming days, we will learn the fate of Brazilian President Dilma Rousseff, whose time in office has been marred by economic decline and scandal. The current investigation into alleged corruption at the state run oil company Petrobras is the biggest in history. Coupled with the ongoing and deep economic recession, events in Brazil should certainly be alarming to many, including sponsors of the upcoming Olympic Games. What can we expect should events continue to decline? Could mass public protests and disruptions threaten international sponsorship of the world’s most prominent sporting event? After all, this is the time for Brazil to shine as the first South American host and to revel in all its accomplishments as a nation.

While most certainly there is great interest in the games proceeding as planned, it is not clear what immediate impact impeachment might have on Brazil’s fragile economy. One thing is clear: Brazil finds itself caught in a downward spiral, with the government in chaos and the economy in distress. These events are unfolding before a global audience. Thus far, it is hard to predict what course events might take. But, it should be noted that impeachment is not unprecedented with Brazil having ousted previous President Fernando Collor de Mello in 1992 due to corruption allegations. Transition to the Vice President Michel Temer, with whom Rousseff has a growing rift, will likely transpire should the current process advance.

As events progress, it is incumbent on the government and private sector to assuage the fears of all those with a vested stake in Brazil. What happens if there is a new government? Will the games proceed? What impact, if any, will the ouster of Rousseff have on global investors and Olympic sponsors? How can those with a vested interest in the Brazilian economy protect themselves should events sour? It is critical that these questions serve as the guiding principles for those steering Brazil through this current crisis. Far more is at stake than just a political office. After all, the future of Latin America’s largest and most dynamic economy depends on how it weathers this storm.