2014 Brazil FIFA World Cup & 2016 Rio Olympics: Opportunities to revive Brazilian economy
Aditya Mathur, SPJIMR- Mumbai
ARTICLE
INTRODUCTION
Rio + 20, UN Conference on Sustainable Development, held during June 2012 in Rio de Janeiro, an event attended by more than 100 heads of state was highly criticized for the lack of organization and poor service. Many delegates suffered hour long traffic delays, and authorities had to intervene after a travel-agency which won the contract to arrange for hotel accommodation of the delegates charged multiple times the usual room rates. Makeshift camps had to be set up in a park due to scarcity of hotel rooms.
The conference brought to surface the appalling state of infrastructure in Rio and other big cities in Brazil.“ We won ' t make the same mistake” promised Mr. Eduardo Paes, Rio ' s Mayor.
A country which ranks 104 out of 142 countries in the World Economic Forum ' s survey on Quality of Infrastructure will hold the Football World Cup in 2014, followed by Olympics during 2016.
BRAZIL AND THE 3 WAY DEADLOCK Brazil is the 6th largest economy by nominal GDP in the world and has seen remarkable growth in last decade backed by large developments in Agriculture, Mining and Manufacturing sectors. Brazil possesses a strong and growing middle class and huge reserves of natural resources.
But the Brazilian economy faces a unique three way
challenge:
! Overvalued currency
! High interest rates
! High inflation
As of October 2012, Brazil ' s benchmark interest rate was at an all-time low of 7.25 % which is still higher than that of most emerging economies. Inflation too has been over 6 %. Brazilian Real has doubled in value against dollar in the last decade.
The situation is so delicate that if the government tries to take steps to solve one, then the other would get aggravated. Say, if interest rates are increased to curb inflation then that leads to increased foreign investments and makes the Real more expensive. This would adversely affect exports and trade deficit. Similarly any attempt to make the currency more competitive and increasing exports would require keeping the interest rates low but that would lead to even higher inflation rates.
Brazil has been enjoying substantial growth in recent past on the back of high commodity prices. Such growth, also exhibited by Russia, is not sustainable and can disappear if commodity prices collapse. The GDP growth rate for Brazil in 2008-09 was-0.3 % suffering from the global economic meltdown and subsequent fall in commodity prices. Other emerging economies fared much better, with China growing at 9.2 %, India at 3.9 % and Poland at 1.6 % during the same fiscal.
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