Brazilians have demonstrated their right to be heard. The unprecedented chain of events that started with complaints about inflation (bus and subway tariffs) has led to mass protests over corruption, lack of public services, and taxes. As a result of the tension and uncertainty in the past few weeks, some investors have lost confidence in Brazil’s market. After talking with our analysts on the ground there I wanted to share some perspective on the situation.
The people of Brazil have been expressing their discontent with the government, resulting in some unfortunate public clashes with police. On June 20, more than a million people took to the streets to champion a variety of social and political causes. The disruptive protests have continued although most have been peaceful in nature. Brazil’s President Dilma Rousseff has been attempting to defuse the situation, meeting with protest leaders and local government officials, and urging Brazilians to refrain from violence.
Some of the protests coincided with Brazil’s hosting of the Confederations Cup football (soccer) games, seen as sort of a “trial run” for the FIFA Brazil World Cup™ in 2014. Spending on infrastructure for global sporting events, instead of other social interests, has been among the protestors’ complaints.
Government officials have been trying to address some of the protestors’ concerns, although the issues are complicated and the answers aren’t always black and white in terms of the “best” course of action for the country’s long-term economic well-being—or for investors there.
We recognize that it is always easier to judge any political decision from the outside. It is clear that the country’s leaders are taking the public’s response seriously and are using discipline to examine increasing tariffs at a time of such unrest. Of course, inflation has been an issue historically for Brazil, and a key factor leading to public outcry.
While some companies in Brazil can be doing what they feel they need to do for their own survival, the political scenario there is very tough right now.
Unrest and Change
Change, of course, can be very painful, which has been the case in Brazil of late. And if the unrest continues, the short-term impact from the protests is likely to be negative for Brazil’s economy. On June 27, Brazil’s central bank cut its growth forecast for 2013 to 2.7%, down from prior expectations of 3.1%, and cited volatility as a risk factor. While of course we’d prefer to see stronger growth, what really worries us would be a more permanent shift away from a market economy model, i.e., greater privatization. We generally believe government intervention in private enterprise is not the right course to take, and this has been an ongoing concern in Brazil in general. However, we are optimistic Brazil can sort out its problems to the benefit of its markets, its economy, and its people.
For people and businesses to function, there must be proper functioning of public services. So, in that respect, we find the protests encouraging because we think Brazil can do better, and could be experiencing even faster growth rates than it has over the past year. The insurrections and protests we’ve seen not only in Brazil but elsewhere can lead to unfortunate tragedies, but they also mean that the Internet revolution is having an impact. With Twitter and cell phones and other forms of electronic communication, the public can express their feelings to politicians, and that can lead to positive change.
We haven’t lost hope in Brazil’s potential, and plan to continue looking for potential investment opportunities there too.