How the excessive tax breaks, irresponsibility, and corruption broke Rio.
The dramatic economic situation in Rio de Janeiro reveals a catastrophic history in the state's administration; according to FGV Economics professor Mauro Rocha, former governor Sérgio Cabral (PMDB), who is currently imprisoned, is largely responsible for Rio's bankruptcy; "He was largely responsible for the state's finances, and he allowed expenses to grow irresponsibly, compromising volatile revenue, such as royalties, which depend on the price of a barrel of oil, with current expenses, which are fixed," he stated; Rio's recovery will be slow and depends on the rest of the country, economists warn; read the report in Jornal do Brasil.
Rebeca Letieri, from Newspapers in Brazil - The dramatic economic situation in Rio de Janeiro reveals a catastrophic history in the state's administration. There was a squandering of public money, including tax exemptions, public spending, political benefits and privileges, and, of course, the icing on the cake: corruption. Despite investigations and arrests by the Justice system and the Federal Police, economists say the crisis in the state is far from over.
"There are many factors that explain the state's situation. There's the oil crisis, with oil being sold at a third less than it was previously worth, a brutal drop in revenue due to the economic slowdown, and the massive hiring of personnel in the state government, which increases the deficit and causes the payroll to skyrocket," said Istvan Karoly Kasznar, professor of economics at FGV.
"The blame lies with [former governor Sérgio] Cabral. He was largely responsible for the state's finances, and he allowed expenses to grow irresponsibly, compromising volatile revenue, such as royalties, which depend on the price of a barrel of oil, with current expenses, which are fixed," added Mauro Rocha, who is also a professor of economics at FGV.
Governor Luiz Fernando Pezão had barely returned to his post after a leave of absence for cancer treatment when he announced a package of measures to curb the economic crisis. If approved, the proposal would end social programs such as Vida Melhor (Better Life), Aluguel Social (Social Rent), and Restaurante Popular (Popular Restaurant), in addition to cutting public servants' salaries.
"I think Pezão has a ticking time bomb on his hands. And he's opting for social spending because it's less politically difficult for him to implement something like that. The powerful will suffer less, as always," highlighted Antonio Porto Gonçalves, also from FGV.
Mauro Rocha emphasizes that for the package to succeed, it is essential that all social segments contribute their share, not just the poorest. "It will be inevitable that everyone contributes," he states.
Mauro further adds that the measures proposed by Pezão were "very similar, affecting unequal groups." "In other words, he did not penalize those with greater contributory capacity more. He did not propose a drastic cut in benefits and privileges," concluded Mauro Rocha.
Antonio Porto Gonçalves adds: "The population understands that these politicians stole state money recklessly. Corruption ends up increasing expenses, but the real problem was mismanagement. Pezão might be able to get some money from the federal government to plug a hole, but he won't solve the revenue problem. The state cannot live spending more than it collects."
Given the severe financial crisis and the difficulty in implementing measures that could offer a more encouraging outlook, economists believe that signs of recovery will take time to appear.
"The state's recovery will be very slow because the country's recovery will be slow, and one cannot succeed without the other. Now, Rio could promote an adjustment, which is indeed necessary, in the state's accounts, regardless of the country's economy. It could begin by reviewing tax exemptions, on the revenue side, and on the expenditure side, selecting those that are not essential, cutting benefits and privileges, which should be a priority," Mauro emphasized.
According to FGV professor Istvan Karoly, the Rio government follows a line of political representation that is not very transparent, or not at all transparent, and takes advantage of its years in office to benefit itself.
"What is most striking is our inability to choose ethical, serious, and credible leaders for long periods. What characterized Cabral was his isolation from power, the absence of dialogue with the mass representatives of society once elected. What needs to be visualized is this choice between limited options that lead to unfortunate governorships, which in one way or another bankrupt the state – because it's not the first time," he concluded.