Rio’s Olympic Hangover is Flushing Their Economy Down the Toilet

Zoe Prendergast -Honorbound-

Through hosting the 2016 Olympics, Rio De Janeiro attempted to present themselves in a positive manner, showing off their culture, power, and economic strength, but the economic downturn that resulted makes the world question if the Olympics only revealed Brazil’s flaws even more. Often, in times of economic distress, governments will make use of fiscal policy by taking on major national projects, but too much responsibility can create perverse incentives that harm the economy more, just as Mayor Eduardo Peres of Rio did.

“Sometimes it is easy to predict how [something] will unfold; sometimes it is enormously complex.”[1]  Perverse incentives can complicate fiscal policy by creating more problems than initially existed.  In order to understand why Brazil accepted to host the Olympics, we must rewind to 2009, a time when Rio was one of the world’s top 10 economies.  On October 2, 2009, when Rio accepted this invitation, their president, Luiz Inacio Lula da Silva, exclaimed, “Now is our time! It’s here! [This] will boost the self-esteem of Brazilians; it will stimulate new progress.”[2]  While all of these goals seem like perfect reasoning to implement fiscal policy at the time, perverse incentives would, and did, say otherwise.

In 2011, Brazil’s GDP report came back as the highest it had been in the past decade due to a boom in major exports such as oil, soy, sugar cane, and more.[3]  At this time, Brazil saw unprecedented progress, as 39.6B Brazilians join the ranks of the new middle class.  However, in late 2014, the price of oil collapsed, and so did Brazil’s economy.  This economic downturn continued into 2016, when the GDP annual growth rate declined to -5.8%.  Along with decreased GDP, the budget cost of the infrastructure projects went form $3B to $13.2B, with most of the costs fell on the shoulders of Brazilian taxpayers rather than the private enterprises.  This alone takes significant amounts of money out of the pockets of already struggling citizens, driving the economy further down the economic slope.  In addition to this sudden loss, thousands of families (67,000 people) were kicked out of poor neighborhoods, known as favelas, so that they could be rebuilt for the games.[4] Jeane Tomas, a local, spoke with the Washington Times about how she had been working for years to save money to build a house, only for it to come down shortly after.  Her family, along with all of the other families in her favela were relocated. She complains that there is nothing nearby, causing her husband to lose his job to the distance.  This loss of jobs lowers the GDP as unemployment rises and citizens become upset with the government.  Since the end of the games, “public confidence in City Hall plummeted further…57% of Rio’s population do not trust the mayor.” 2

Now that the Olympics have ended, Rio is struggling with what to make of what is left.  The $20M golf course does not have any players and the $1B  Athlete Village have yet to sell, only 7% being occupied.[5]  “The state of Rio de Janeiro is months late paying teachers and hospital workers. The state also reports record-breaking crime in 2016,”5 only making the government spend more money on police forces.  Many other factors, such as the outbreak of Zika, also play into the economic downfall of Rio.

[1] Wheelan, Charles J. Naked economics: undressing the dismal science. New York: W. W. Norton, 2010.

[2] Soares, Luiz Eduardo. “After the party: Rio wakes up to an Olympic hangover.” The Guardian. August 21, 2016. Accessed March 29, 2017. https://www.theguardian.com/books/2016/aug/21/rio-2016-olympic-games-brazil-legacy-party.

[3] “Brazil GDP | 1960-2017 | Data | Chart | Calendar | Forecast | News.” Brazil GDP | 1960-2017 | Data | Chart | Calendar | Forecast | News. Accessed March 29, 2017. http://www.tradingeconomics.com/brazil/gdp.

[4] “Rio holdouts: Brazilian slum resists eviction in shadow of Olympic Park.” The Washington Times. June 09, 2015. Accessed March 29, 2017. http://www.washingtontimes.com/news/2015/jun/9/holdouts-slum-resists-eviction-in-shadow-of-olympi/.

[5] Ap. “Olympic ghost town: Bills due, venues empty after Rio Games.” USA Today. February 10, 2017. Accessed March 29, 2017. http://www.usatoday.com/story/sports/olympics/2017/02/10/rio-is-stuck-with-big-bills-and-vacant-venues-after-olympics/97733624/.

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