ALMO ED PR

Austerity suits many different interest groups in the Brazilian society, some of which have always argued that the 1988 Federal Constitution guarantees too many social rights or that there was excessive government intervention in the economy, such as increasing the minimum wage or undertaking development policies using public banks.

The Federal Constitution was inspired by the experience of the welfare state in Europe. It aimed to answer the social demands that the civilian-military dictatorship (1964–1985) had thwarted, by guaranteeing social rights. For example, this Constitution stipulates education as a social right, for the first time in Brazilian history.

The crisis gave strength to the critics of the 1988 Constitution. Invoking the need to get back to balanced budgets in order to return to growth, in austerity they found a key instrument for breaking down the state’s social role. In 2015, the government combined a monetary policy shock (a sudden reduction in the supply of money by the central bank), with an increase in interest rates and a reduction in the role of public banks; a liberalization in the foreign exchange market which devalued the Brazilian currency by more than 50 percent one year; and a shock in administered prices (especially regarding crucial items such as residential electricity and fuel).

The result was massive inflation — above 10 percent in that year alone. This was complemented by drastic cuts in government spending, which affected investments and social spending. All these elements contributed to the worst economic crises in Brazilian history, marked by declining GDP.

Austerity and other neoliberal measures pushed Brazil into an economic crisis, which is still felt by the Brazilian workers. For example, while unemployment had reached its bottom level of 4.3 percent in 2014, this figure rose to 6.9 percent in 2015 and kept growing ever since. The most recent data shows that Brazil has 12.7 million unemployed and 27.5 million unemployed. GDP fell by 3.5 percent in 2015 and 3.3 percent again in 2016.

The economic crisis then led to a fall in support for the Dilma government and prepared the way for the coup d’état in 2016. The Temer government followed and constitutionalized austerity with Constitutional Amendment 95/2016, which bans govern primary expenditures (that is, government spending on goods and services, not including interest on debt or similar items) to grow in real terms for the next 20 years, therefore reducing public expenditures and the size of the state relative to GDP.

If the Dilma government saw austerity in terms of “adjustments”, under Temer it became a structural and permanent measure. And austerity also has an effect in increasing inequality, which is one of Brazil’s biggest social problems. As we show in our book, government spending like cash transfers, the general social security system, and social policies such as health and education have an effect in decreasing inequality. So, reducing social spending in those areas will aggravate social inequality not only in terms of income, but in several other aspects of inequality such as gender, race, region, and access to social services.