After the World Cup, the Real Challenge Starts for Brazil

In mid-June, the FIFA World Cup tournament will kick off in Brazil, and Dilma Rousseff is expected to be one of national team's most diehard fans. Presidential elections will take place just a few months afterward, in October. Currently, polls favor Ms Rousseff as the next president, and a world football championship is likely to give strong advantage to the incumbent. President Rousseff is thus right in hoping that Brazil wins the World Cup and that Brazilians forget their economic difficulties for a few months, so that they can confirm her in office.

The president will also be anxious to see what happens outside soccer fields: will there be huge mass protests such as those that took place in many Brazilian cities last June during the Confederations Cup? And will the youth of shanty towns repeat the rolezinhos– flash mobs – in luxury malls and world cup sites? The question might seem rhetorical, given that a recent poll (held in February by CNT/MDA) says that 85% of those interviewed expect a rerun of those events.

At first sight, the reasons for protesting are all there: the huge money outlays to build new stadiums, the spike in the cost of living, and the frequent power blackouts are there for all to see. The Rousseff administration has been trying to persuade Brazilians that expenditure for the World Cup is in fact investment that will bring lasting benefits to the economy, and that no resources were taken away from spending in health and education, which has trebled since 2007. The fact is that for many Brazilians life has become harder over the last two or three years, and that the 2000s perception of success and progress, due to the country's rapid growth in that decade, has now worn thin.

Inequality in income distribution, which decreased in the boom years, remains one of the highest in the world. The demand for better education and health services, transportation and housing is very strong precisely among those millions of Brazilians who have entered the middle class in recent years. Also the performance of the economy is cause for discontent. Economic growth has slowed down markedly, if compared to 3.7% p.a. growth rate of the 2000-2012 period, and the cost of living has skyrocketed. World cup spending has increased the deficit, which is expected to hit 4% of GDP in 2014, while the restrictive stance taken by the central bank to fight inflation has had a negative impact on economic growth.

Since it's unlikely that restrictive fiscal policy will be adopted before the election, in 2015, President Rousseff, or whoever wins the vote, will have to face a tough policy trade-off: either cut spending or increase taxes. Cutting the deficit will hurt growth, already hampered by anti-inflationary monetary policy. So for Ms Rousseff, 2014 had better be the year in which Brazil wins the World Cup, because the country will have to face more difficult challenges in the years that lie ahead.