Infrastructure finance: Projecting Brazil’s future

By:
Rob Dwyer
Published on:

The Brazilian government is pinning its hopes on infrastructure finance to boost GDP growth and help woeful productivity rates. But the source of finance and the viability of some of the proposed projects mean that an infrastructure-led recovery won’t be coming to Brazil’s rescue any time soon.

The Brazilian economic model is broken: reliance on strong export volumes of commodities priced to meet voracious Chinese demand and a parallel boom in consumer growth has caught up with the country. Commodity prices are on the floor and its consumers are broke – overwhelmed by large debts and larger interest rates levied on those debts.

A recession has hit. The political paralysis caused by the fallout of corruption scandals and a president who has had to embrace the market-friendly policies (which she dismissed when suggested by her opponents in last year’s elections) have meant a loss of popular support and narrowing of the political base. That will only prolong the downturn. The structural reforms needed to lower government expenditures – and lend fiscal support to what is currently monetary policy’s single-handed attack on 9% inflation – are unlikely in the current administration of Dilma Rousseff. 

So in June...