Poverty and inequality are on the rise in Brazil where the pandemic only accentuated an already massive wealth divide.
Alessio Perrone

Rafaela Dutra was working in Rio de Janeiro's tourism industry and studying to become a nurse when the coronavirus arrived. A resident of the sprawling low-income favelas in the city's Zona Norte, she had worked in one of Copacabana's shiny, high-rise hotels, earning up to twice the region's minimum monthly wage of 1,200 reais ($220). But after six years on the job, Dutra told Brazilian daily O Globo, she was laid off in April after the city had dried up of tourists. The only work she could find was selling clothes on the street at a time when most people started working from home or had also lost their jobs. "Some days I sell less than 50 reais ($8.80) worth of stuff," she said.

Dutra's story is a case in point: poverty and inequality are on the rise in Brazil, a country of 210 million people, where a massive wealth divide has long plagued society. With COVID-19, the economy has begun to unravel and policymakers are warning of a backslide into entrenched poverty of dangerous proportions after temporary government support winds down.

A poorer Rio: Poverty is rising fast in Rio de Janeiro state, around the iconic coastal city, according to a study by Marcelo Neri of the Getulio Vargas Foundation, a research institute:

• In August alone, Neri found that more than 270,000 Rio residents fell into poverty.

• Autonomous and informal workers suffered the most during the country's lockdown and lost their livelihoods from one day to the next.

• Rio de Janeiro is Brazil's second-biggest economy after São Paulo — but more than five million residents are either unemployed or informal workers.

An isolated case? Researchers caution that Rio is performing worse than the rest of Brazil:

• Unemployment is on the rise throughout the country, where more than 14 million people are out of work, reports the Correio Braziliense, as unemployment has risen from 10% to 14.4%.

• But at the same time, many other Brazilians are being lifted out of poverty at a historic rate. Largely due to a government emergency support scheme that hands vulnerable Brazilians 600 reais per month ($106), the number of destitute Brazilians has fallen by more than 20% during the pandemic (from close to 9 million in May to 6.9 million now). This is the best result Brazil has posted in 40 years.

• The policy can help explain Bolsonaro's spike in popularity even though more than 150,000 deaths are blamed on the coronavirus.

Photo: Fabio Teixeira/ZUMA

No reason to be cheerful: "The support scheme shows that social policies are designed badly in Brazil. When the government withdraws the 600-real-scheme, extreme poverty will triple by the beginning of 2021," Daniel Duque of the Brazilian Institute of Economics at the Getulio Vargas Foundation told the Gazeta do Povo. "When you look at income distribution, you can see that inequality has exploded. The rich are making more money during the pandemic, and the poorer have seen money wane in their pockets."

Go deeper: Not long ago, Brazil was hailed as an economic miracle for the rate at which it was lifting its people out of poverty. Now, The pandemic risks jeopardizing the progress the country made.

• Between 2000 and 2015, some 50 million low-income Brazilians were lifted out of poverty, or some one-quarter of the population.

• The results were largely linked with the popular Bolsa Familiascheme introduced by leftist President Inácio Lula da Silva, known as Lula. The policy gives poorer families a monthly stipend in exchange for sending children to school and complying with health checkups.

• But Brazil experienced the worst recession in its history between 2014 and 2016, causing inequality to rise again. Last year's "Global Inequality Report" ranked the country second in the world (behind Qatar) for having the highest concentration of income in the top 1%, Folha de S. Paulo reported.

Poverty is a risk factor: In Brazil too, the virus has killed the poor and the marginalized in higher proportions:

• A housekeeper was the first death from COVID-19 reported in Rio de Janeiro in March.

• The evolution of the pandemic in Brazil has killed poor and Afro-Brazilian people more than the rest of the population. They are often essential and informal workers, or simply workers who could not afford to stop working during the pandemic.

• One more reminder that "Social inequality has a direct impact on deaths among the poorest and least educated," as Paula Maçaira, a researcher of Industrial Engineering of the Pontifical Catholic University of Rio de Janeiro, told O Globo. "The more unfavorable the patient's socio-economic situation, the more likely he is to die."

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Economy

European Debt? The First Question For Merkel's Successor

Across southern Europe, all eyes are on the German elections, as they hope a change of government might bring about reforms to the EU Stability Pact.

Angela Merkel at a campaign event of CDU party, Stralsund, Sep 2021

Tobias Kaiser, Virginia Kirst, Martina Meister


-Analysis-

BERLIN — Finance Minister Olaf Scholz (SPD) is the front-runner, according to recent polls, to become Germany's next chancellor. Little wonder then that he's attracting attention not just within the country, but from neighbors across Europe who are watching and listening to his every word.

That was certainly the case this past weekend in Brdo, Slovenia, where the minister met with his European counterparts. And of particular interest for those in attendance is where Scholz stands on the issue of debt-rule reform for the eurozone, a subject that is expected to be hotly debated among EU members in the coming months.

France, which holds its own elections early next year, has already made its position clear. "When it comes to the Stability and Growth Pact, we need new rules," said Bruno Le Maire, France's minister of the economy and finance, at the meeting in Slovenia. "We need simpler rules that take the economic reality into account. That is what France will be arguing for in the coming weeks."

The economic reality for eurozone countries is an average national debt of 100% of GDP. Only Luxemburg is currently meeting the two central requirements of the Maastricht Treaty: That national debt must be less than 60% of GDP and the deficit should be no more than 3%. For the moment, these rules have been set aside due to the coronavirus crisis, but next year national leaders must decide how to go forward and whether the rules should be reinstated in 2023.

Europe's north-south divide lives on

The debate looks set to be intense. Fiscally conservative countries, above all Austria and the Netherlands, are against relaxing the rules as they recently made very clear in a joint position paper on the subject. In contrast, southern European countries that are dealing with high levels of national debt believe that now is the moment to relax the rules.

Those governments are calling for countries to be given more freedom over their levels of national debt so that the economy, which is recovering remarkably quickly thanks to coronavirus spending and the European Central Bank's relaxation of its fiscal policy, can continue to grow.

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive.

The rules must be "adapted to fit the new reality," said Spanish Finance Minister Nadia Calviño in Brdo. She says the eurozone needs "new rules that work." Her Belgian counterpart agreed. The national debts in both countries currently stand at over 100% of GDP. The same is true of France, Italy, Portugal, Greece and Cyprus.

Officials there will be keeping a close eye on the German elections — and the subsequent coalition negotiations. Along with France, Germany still sets the tone in the EU, and Berlin's stance on the brewing conflict will depend largely on what the coalition government looks like.

A key question is which party Germany's next finance minister comes from. In their election campaign, the Greens have called for the debt rules to be revised so that in the future they support rather than hinder public investment. The FDP, however, wants to reinstate the Maastricht Treaty rules exactly as they were and ensure they are more strictly enforced than before.

This demand is unlikely to gain traction at the EU level because too many countries would still be breaking the rules for years to come. There is already a consensus that they should be reformed; what is still at stake is how far these reforms should go.

Mario Draghi on stage in Bologna

Prime Minister Mario Draghi at an event in Bologna, Italy — Photo: Brancolini/ROPI/ZUMA

Time for Draghi to step up?

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive. That having been said, starting in January, France will take over the presidency of the EU Council for a period that will coincide with its presidential election campaign. And it's likely that Macron's main rival, right-wing populist Marine Le Pen, will put the reforms front and center, especially since she has long argued against Germany and in favor of more freedom.

Rome is putting its faith in the negotiating skills of Prime Minister Mario Draghi, a former head of the European Central Bank. Draghi is a respected EU finance expert at the debating table and can be of great service to Italy precisely at a moment when Merkel's departure may see Germany represented by a politician with less experience at these kinds of drawn-out summits, where discussions go on long into the night.

The Stability and Growth pact may survive unscathed.

Regardless of how heated the debates turn out to be, the Stability and Growth Pact may well survive the conflict unscathed, as its symbolic value may make revising the agreement itself practically impossible. Instead, the aim will be to rewrite the rules that govern how the Pact should be interpreted: regulations, in other words, about how the deficit and national debt should be calculated.

One possible change would be to allow future borrowing for environmental investments to be discounted. France is not alone in calling for that. European Commissioner for Economy Paolo Gentiloni has also added his voice.

The European Commission is assuming that the debate may drag on for some time. The rules — set aside during the pandemic — are supposed to come into force again at the start of 2023.

The Commission is already preparing for the possibility that they could be reactivated without any reforms. They are investigating how the flexibility that has already been built into the debt laws could be used to ensure that a large swathe of eurozone countries don't automatically find themselves contravening them, representatives explained.

The Commission will present its recommendations for reforms, which will serve as a basis for the countries' negotiations, in December. By that point, the results of the German elections will be known, as well as possibly the coalition negotiations. And we might have a clearer idea of how intense the fight over Europe's debt rules could become — and whether the hopes of the southern countries could become reality.

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