The party’s over: Rio de Janeiro’s time as the host city for the Olympic Games is a distant memory, while at the state level it can no longer rely on revenue from its offshore oil wells. To make matters worse, ongoing investigations into widespread corruption have frightened foreign investors away. Unemployment in the state of Rio de Janeiro has risen from 3.5% in 2014 to 6.7%, almost twice the national average.
Rio’s woes reflect the problems facing Latin America’s largest economy, which, after going into recession in 2014, is still struggling to find its footing amid what most economists believe will be its deepest downturn in more than a century.
Goldman Sachs estimates that Brazil’s GDP per capita will shrink at least 9% in real terms between 2014 and 2016 – more than during the so-called lost decade of the 1980s.
The coming days are due to see further protests by government employees
Economists are hoping that the market-friendly Cabinet of President Michel Temer, who took over from Dilma Rousseff after she was impeached in August, will allow for a rebound in consumer and business confidence in the short term.
But Rio is no longer a symbol of Brazil’s success story, as captured by The Economist back in 2009 with a cover that featured the city’s Christ the Redeemer statue blasting off like a rocket. State governor Luiz Fernando Pezão of the Brazilian Democratic Movement Party (PMDB), recently described Rio as “close to ungovernable,” while Finance Minister Henrique Meirelles says the state is an example of everything that is wrong with Brazil.
An indication of the gravity of the situation is that government employees will see their October paycheck broken down into seven payments, and there are doubts about whether they will be paid at all in the coming months.
The state government has already asked for federal aid from the central government in Brasilia, and has unveiled a package of austerity measures that have angered civil servants, who have staged four consecutive days of protests.
“The measures are Draconian, but necessary. As well as cuts [aimed at saving $3.9 billion], the state needs to find revenue: the crisis isn’t due to spending but to a sharp fall in income from taxes, as well as from oil royalties and central government transfers that weren’t thought through, dependence on oil and an empty productive structure,” explains Mauro Osório, a lecturer at Rio’s Federal University.
Government employees will see their October paycheck broken down into seven payments
He believes the state has been living in a fool’s paradise: “From 2008, Rio began to approach the average national growth level. It was awarded the Olympic Games, the automotive industry took off, it benefited from the Accelerated Growth Program (PAC) and received federal investment, but there was no consolidated planning and tax breaks were offered to attract investors,” he explains.
The immediate outlook is equally bleak: “If the courts freeze the state’s assets until it pays government employees, there won’t be enough money to pay for prison food or hospital medicine,” he adds.
Nelson Duarte, president of the country’s construction labor union, says his sector has been hardest hit by the post-Olympics crisis: “Just about all major projects have been halted, and infrastructure is essential for the economy to get moving. Some 9,000 people were laid off in 2015; this year the figure will be 14,000. We’ve never seen a situation like this,” he explains.
The coming days are due to see further protests by government employees, from police officers to doctors, outside the state legislature. There is already talk of widespread strikes in schools, hospitals and government offices.
The measures the state government is proposing would see government offices reduced by up to 30%, along with salary cuts. The price of beer, cigarettes and gasoline will rise, while electricity and telephone bills will be higher. At the same time, social programs to help the poor will be dropped, meaning no subsidized rents or transport and the closure of community kitchens.
English version by Nick Lyne.