Rio Olympics: Behind the scenes!

This post will take a quick overview of the situation in Brazil ahead of the Rio Olympics 2016. The recession hit economy suffers from soaring unemployment, inflation (stagflation) and interest rates as high as 14.5%; the terror of Zika virus needs no description; notorious corruption scandal surrounding Petrobas and ‘fiscal pedaling’ implicate Dilma Rouseff for which she faces an impeachment trial, while 3 sports ministers have changed under the interim President.

If Brazil’s economy is so fragile currently, why was it awarded the title of Olympic host in 2009? Because it was 2009 and Brazil proved its resilience. In the wake of the global financial crisis, Brazil’s economy was among the less affected ones and was quick to recover posting a GDP growth of 7.5% in 2010. In http://goo.gl/DjOWWK Morgan Stanley’s Ruchir Sharma says that a part of this can also be attributed to the fact that a major share of Brazil’s exports are in commodities (oil, iron ore, minerals) whose prices had been rising around 2010 and it was only in 2014 that they started to plunge. This was aggravated by the Chinese economic downturn around late 2014 since China is Brazil’s major export market. Hence, dark clouds loom over the economy.

In the article, http://www.nytimes.com/2016/06/25/sports/olympics/as-the-olympics-near-brazil-and-rio-let-the-bad-times-roll.html?_r=0, Paul Krugman highlights that Brazil initially budgeted only $14bn but now it is estimated to be $20bn. He states that the bid for Olympics is made on 2 grounds: more tourism and spending on infrastructure will boost the economy. At the same time, the publicity surrounding bad preparations of Rio Olympics may just defeat the purpose entirely. Giving 2 examples, he describes the delayed construction of a 10 mile railway line as futile to serve any purpose after the games and the failure of the government to clean the polluted Guanabara Bay where sailing competitions will be held.  Interestingly, due to lack of funds the athletes’ dorm rooms won’t have TVs and they were even thinking of charging them for ACs. Recently, Rio declared a ‘Public Calamity’ asking the federal government for a loan of $850mn to meet its commitments for Olympics since the state was bankrupt.

Indeed, http://www.wsj.com/articles/andrew-zimbalist-boston-would-be-lucky-to-lose-the-olympics-competition-1420847406 is an informative article by Andrew Zimbalist, a sports economist who is also the author of the book ‘Circus Maximus: The Economic Gamble Behind Hosting the Olympics and the World Cup’ published by Brookings Institution Press. He gives a reverse case of outbound tourism, maintenance cost of underutilised facilities and the wastage of urban real estate which would have limited use after the games.

*This was originally posted on FISCUL, Lady Shri Ram college facebook page. These posts use a different format by supplementing them with links which have been used for the research and are hence kept short and crisp.

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