Brazil has been a headline maker as of late. The county is gearing up to host the Summer Olympics in Rio de Janeiro, is a major hotspot for the much buzzed about Zika virus… and oh yeah, the parliament just voted to suspend President Dilma Rousseff, who faces impeachment over charges of fiscal corruption connected to a mass political and economic scandal the likes of which the country has never seen. We wanted to make sense of it all, so our student fellow, Jennie Spector, sat down with economist Monica de Bolle to learn more.

Monica, who holds a Ph.D in economics from the London School of Economics, is a nonresident senior fellow at the Peterson Institute for International Economics in DC, where she also teaches as an adjunct professor at Johns Hopkins University. She was an economist at the International Monetary Fund, and has co-authored a number of books on the global economy and Brazil’s policy challenges.

A Brazilian native, she was named as “Honored Economist” in 2014 by the Order of Brazilian Economists for her contributions to the Brazilian policy debate, and her views on Brazil’s economy and economic policy have been published widely by the international and Brazilian media. Previously she was a director of the Institute for Economic Policy Research (IEPE/Casa das Garças), a prestigious think tank based in Rio de Janeiro, Brazil. 

Fun-fact: “I am a (closet) short story fiction writer.” 



FPI: What’s going on in Brazil?


Let me try to break it down – it’s so many things at the same time, and the situation is so fluid, and changing so rapidly that it’s very difficult to keep abreast of everything that’s happening.


Basically we’re in the final stages of what will be a government change in Brazil, or at least it’s turning out that way. There’s an impeachment process against the president. As of a few weeks ago, there was still kind of a 50-50 chance that impeachment would go through – that changed dramatically in a quick period of time. And there are a few reasons for that. The main one is the way the impeachment process works in Brazil. When the lower house receives a petition and decides to open a case, it has to set up a special commission to make a recommendation on whether or not the petition has substance to earn a full house vote. This special commission, which was seen as pro-government, actually voted against the government, and by a wide margin. It was a major turning point in the whole impeachment saga: essentially, there was a smaller coalition partners of the government who were hoping to negotiate with the government to give an anti-impeachment vote if they got certain governmental appointments. But the perceptions that the government is actually able to deliver on these promises evaporated with the pro-impeachment commission vote. So that means that these smaller parties are now dropping out like flies from the coalition and the game has changed entirely.


FPI: Taking a step back from impeachment itself, what are the grounds for impeachment? Assuming someone knows nothing about what lead Brazil to this current state, what happened?


Well, there are at least two very important things to realize about Brazil. The country is undergoing a major crisis, and not of the sort that Brazil has had in the past. It’s also not a fiscal crisis of the sort countries like Greece went through recently. It is a crisis where the country has been in recession for some time now – it’s likely to see another drop in GDP recorded this year, and if this is confirmed, it will have been the biggest crisis in terms of GDP loss that Brazil has ever had since it started recording GDP, so it’s really a big deal. Unemployment has been on the rise, inflation is still relatively high, and the whole macroeconomic framework has been completely dismantled in Brazil – the government had a lot of populist policies that lead to this state of affairs.


So on the one hand, you have these underlying economic problems, on the other hand you have the corruption probes, the investigation into the kickback schemes centered at the oil companies – Petrobras, Brazil’s largest company, responsible for a very significant chunk of investment in Brazil. A large number of companies, mainly construction companies involved in this scheme were caught –their executives have been arrested, and a number of them have plea bargains, out of which has come out the way the government, and specifically the President herself, allegedly benefited from the kickback scandal, from the Petrobras scheme. Most significantly was the money from these schemes going into the President’s 2014 campaign. These are very serious allegations; she could actually be jailed if it came to that.


But because the whole corruption scandal is not circumscribed to her only, but actually engulfs a lot of Brazil’s private sector and politicians, the country has been undergoing a massive political crisis for just over a year and a half now, and it’s been getting more and more severe as revelations come out from the corruption probe. Brazil has never suffered a political crisis of this magnitude, and this has only made the economic situation worse. The impeachment petition itself has a lot to do with fiscal fraud, with her having hidden the true state of fiscal accounts in Brazil for the last couple years. However, because as we know impeachment processes are about the politics of the situation, even if the impeachment petition is focused on the technicalities of whether of not these things were happening, there are all these other criminal allegations, that even if they’re not technically being considered, they are likely to influence how people will vote. That’s it in a nutshell.


FPI: How did this information get released?


It’s very reminiscent of what happened in Italy back in the nineties with the “clean hands operation,” because it happened in the same way. There was one federal judge that found illegal dealings with a black market dealer in shadow currency markets. The judge pulled this little thread, looking into this guy doing shady dealing with a few companies, and once the judge had enough information to arrest him, the guy plea-bargained and started spilling the beans on something so much bigger than what this judge and the state thought they were investigating. It just so happened that this guy was in the middle and knew everything about the corruption scandal and Petrobras. So the judge kept on pulling the thread, arresting more and more people, and in the end you have almost every major construction company in Brazil having plea bargained to some extent, and they started pointing fingers at people who were very high up in the government, including President Rousseff and former President Lula.


FPI: How do you think the country is handling all this? It sounds like things are moving through the political machinery, what do you think this says about Brazil’s overall system?


The process has been extremely turbulent, as one would expect in an investigation of this size with so many powerful people involved. But the one thing that is really surprising about this whole Brazilian story is that it’s the first time something like this has actually happened – we know that in many places in the world there is corruption, but Brazil has never actually done anything about it.


Even if there were allegations of corruption in previous governments involving the private sector, nothing ever really happened. This is the first time that you have a major corruption probe where people are being indicted and arrested and facing the consequences of having done what they did. It says something about how robust and how much more evolved, developed, and independent Brazil’s judicial system has become. So that’s one thing that I think is good about this process.


The second thing to keep in mind is that the entire process is being done within the limits of what the Brazilian constitution establishes. I remember awhile back, the Financial Times said that Brazil was facing a constitutional crisis, and in fact, Brazil is facing a lot of crises – but a constitutional one it is not. If anything, the constitution is being followed and everyone who is responsible for taking this process forward is taking the constitution very seriously, trying to keep the process as open and transparent as possible, even if the situation is obviously extremely complex and very messy. So I think that while right now this is making Brazil look bad, several years down the line this is a sign of institutional strengthening for Brazil.


FPI: Brazil has a lot of other things on it’s plate – it has the Rio Olympics, it has Zika – do you think that the current state of affairs will allow the government and the private sector to handle all of that?


It’s to be seen – the Olympics are just around the corner, and the Olympics are going to take place just like the World Cup did. When the World Cup took place, the situation wasn’t as bad as it is now, but the economy was very weak, the government itself was very weak, it was the year of the election…and the government managed to pull off the World Cup, and it’s going to pull off the Olympics too. With the health crisis, Zika in some parts of the country, and an H1N1 epidemic in San Paulo, it will hurt tourism. So the Olympics will happen and will go relatively well, I believe, but we won’t get the kind of tourism revenues that we may have gotten otherwise.


The other issue that needs to be pointed out is that with all that’s going on in the country, Brazilian’s are not excited about the Olympics at all. They’re not repudiating the Olympics, like they did at the time of the World Cup when they said, “We want these resources that are being used to build stadiums to be used for other things,” — that sort of thing isn’t taking place in regard to the Olympic games. Presumably also because the Olympics are, unlike the World Cup, taking place in one concentrated place, Rio. But no one is excited about it. You talk to people in Brazil, and no one is thinking about the Olympics, it’s not on anyone’s mind. People are thinking about what impeachment will mean and if the economy recover sometime soon.


FPI: Do most Brazilians want impeachment?


There is a crisis of traditional politics in Brazil. Brazilians in general are very suspicious of the political class – in particular of the main traditional political parties who are now heavily involved in this corruption scandal. But that said, the perception on the ground is that this government has lost the ability to govern. So the majority is actually in favor of impeachment; the polling shows that some 70% of the population is in favor of impeachment. It’s not that they think that what will come after impeachment will be that much better, but they do feel that because this government has lost the ability to do anything, anyone that comes in will be better.


FPI: Can you tell me now a bit about your job and your focus?


I’m an economist and I’m Brazilian. I have a PhD in economics from the London School of Economics, and I worked for a while at the IMF and lived in Brazil for several years afterwards. I then moved back to DC in 2014 and I joined the Peterson Institute for economics. I teach at Johns Hopkins – and actually teach a course now on financial crises and emerging markets. Basically these days, though I’m more of an international macroeconomist, I’ve been focusing on nothing but Brazil, because the situation is what it is. I’m starting to write a book on how Brazil came to this point and why the situation evolved to this, when a few years ago people thought that Brazil was this star, emerging market, so I’m writing this book to explain to people: look, the story was never that simple and here’s why.


FPI: If you could impart one thing to the world about the situation in Brazil, or macroeconomics as a whole and how it intersects with politics, what do you wish people knew?


I think the main message that the Brazilian crisis says is that, first of all, emerging markets are difficult places to make predictions about.


Not that you can make predictions about anywhere in the world, these days, advanced economies are almost as difficult, but there was this whole emerging market euphoria a few years ago regarding brazil. I think that there needs to be a closer look at what’s actually happening for people to understand that in general, emerging markets are still countries that are undergoing development in several different ways. Some of these countries are very young democracies, and I think the Brazilian crisis is a very good example of that – while there was this impression that economy was doing very well, you had these skeletons being built. So for emerging markets in general, always keep in mind that there are several internal weaknesses that despite all the work that countries have done over the years, still prevail and still generate the sort of crises that people hope they have overcome. And, secondly, in many of these countries, democracy is very young and can undergo periods of transition that are good to come out of, but are still very turbulent while they’re happening.


FPI: Do you think it’s still relevant to talk about the BRICS?


I never thought it was relevant. I’m in that camps that thinks that BRICS is a nice little misnomer. The countries can’t be put in the same basket, they’re too different.


FPI: Are there any books for people who want to learn more about you do, or any books that have been formative for you?


For me, the things that have I’ve read that have really changed the way that I look at things these days were not economic at all, but when I was trying to understand the 2008 crisis as it was unfolding, I started to study complexity theory, or network theory. The literature that I read really taught me to think about issues, the world, countries, the interaction between economics and politics, in a completely different way.


FPI: What advice do you have for upcoming and fellow interrupters?


One of the key pieces of advice that I tell my students quite often, is when we study economics in particular, we tend to stay very focused on what our models tell us, and the kind of things that seem very well defined and technical and analytical, but when we actually have to analyze real world issues we can never dissociate economics from political issues. The models all look great in class, but they only work if politics are perfect. Never forget the huge dimension that politics plays when you’re trying to predict outcomes.