Call us on
+44 (0) 207 045 0920


Brazil: The Economics of The Intervention in Rio

The federal public security intervention in Rio de Janeiro is one more example of the political perspicacity of the government leaders. In one fell swoop they managed to remove the monopoly on the public safety agenda of an important competitor, give a sign of strength to unfaithful allies, and put the opposition in the uncomfortable position of criticizing a measure with popular appeal.

Feb 26, 2018 // 5:33PM

The decision indicates that the upper echelon of the government has changed focus. This is no novelty. Experienced politicians always calculate the cost-benefit tradeoffs implied by their choices, and the agenda of economic reforms loses points in election years in favour of initiatives that are more political by nature.

This does not mean that Congress will fail to approve anything else this year. There is a strong effort by ministries and the Central Bank, and in some cases by lawmakers, to approve structural reforms. The election calendar, however, is a limiting factor.

It is important to mention the merit of the government in sending a relevant list of reform measures. This will serve to mold the political agenda and the next president will not have to start from scratch.

The political and electoral impact of the intervention will depend on its success. Even if the progress is timid in terms of violence indicators, the perception of improved security by society can have positive political consequences.

There are chances of success of this undertaking, if the scope is well defined and the expectations well managed. There is an alarming deficit of police in the streets, so just the increased patrolling will make a difference. Besides this, the head of the intervention forces, General Walter Braga Netto, has a good reputation and experience in similar actions in Rio.

The scope of the operation is not yet clear, nor is the diagnosis about the problem of security unanimous. However, there appears to be a greater consensus on the need to identify and remove corrupt police and isolate gang leaders in the prisons.

The risks are high, particularly when considering the limitation of the military operation and the probable reaction of corrupt police and criminals. These are factors to be taken into account.

It is also crucial to consider the costs involved. Tax revenues are scarce. The signal is that the National Treasury will foot the bill. In other words, Brazil as a whole will once again pay for the fiscal irresponsibility and mistaken public policies in Rio.

The disenchantment of governors from other states is growing, and some will suffer as a result of the intervention; criminals will seek other havens.

It’s true that the federal government is flawed in its defense of the borders and the absence of a national security plan, placing a heavy burden on the state governments. But the weight rests on all. In the Northeast, the violence numbers are even greater, even though in absolute terms the situation in Rio is much more severe, undermining the public budget, economy and image of the country abroad.

Besides this, the intervention might open a dangerous precedent, by stimulating other states to ask for the same treatment. That said, it would be very important for Rio to bear the cost of the federal intervention. Since this is not workable, due to the state’s dire lack of resources, the additional costs at least should be shared.

Other economic consequences exist. The government has created a trap, because Congress cannot vote on constitutional amendments during the intervention. Nearly all the obligatory expenditures, which take up most of the federal budget, are governed by the Constitution and its amendments, like the golden rule. Thus, there is no way to achieve a fiscal adjustment, or enact measures to comply with the golden rule, with the intervention. This is a reason to avoid similar actions in the future.

The intervention might be positive from the political standpoint for government leaders. Hopefully the outcome will be successful, in particular because the economic impact will be large.

More ANALYSIS on Brazil's economy

Americas Policy & Government Brazil Macro Latin America Investor Insights Global

Bonds & Loans is a trusted provider of news, analysis, and commentary that helps illuminate the most significant issues, events and trends impacting the global emerging credit markets.

Recommended Stories