Rio Says Municipality Remains Economically Afloat

(ATR) An independent report commissioned by outgoing Rio de Janeiro Mayor Eduardo Paes says the municipal economy avoided the financial crisis in Brazil.

According to a release from the Rio municipal government, the report was conducted by 12 public finance experts, coordinated by José Roberto Afonso. Afonso is a respected economist from Brazilian think tank Fundação Getúlio Vargas.

The report says the city invested a total $11.57 million in public works, while reducing expenses and debt. Rio "benefited by a set of favorable conditions" during the Paes administration, and leveraged those conditions to prevent a long-term economic quagmire.

This outlook could not be said for much else of the country. The report said Rio received "better ratings provided by the international rating agencies among Brazilian governments" including the federal government. The report called that a "unique situation," not found much around the world.

Brazilian economist, and professor at New York University in Shanghai, Rodrigo Zeidan told Around the Rings the claims from the report were accurate, but "Rio got lucky" with its financial situation.

"It should be noted that Rio's fiscal strategy was quite different and much healthier than that of state governments in the first half of this decade," the report said. "The municipality generated and accumulated its own savings for years, and took bank financing, with low rates and very long terms. [The city applied] both sources in the realization of an important investment effort, unprecedented in other Brazilian local and regional governments."

These conditions included public works built for the 2016 Olympic Games, which took place in the midst of the ongoing Brazilian economic crisis. The State of Rio de Janeiro required a federal bailout ahead of the Games, and continues to struggle to pay government employee salaries. The State also controls a majority of public works for the city of Rio de Janeiro such as public security, hospital administration, and some areas of transportation.

Brazil is currently in its worst recession in over a century, and just passed a controversial austerity package freezing public spending for over two decades in an effort to curtail rising debt.

Attempts at austerity measures have continued at the state level, which have led to clashes between protesters and riot police in downtown Rio. The protests come as public security has eroded in the city, with crime rates surging post-Olympics leading to the resignation of state secretary of securityJose Mariano Beltrame.

Zeidan called Rio’s leadership through the Olympics "not a great administration, just not catastrophic as other cities and states," as it presents a positive situation for the outgoing mayor.

Rio’s record public investment came from the necessities of hosting a modern Olympic Games, Zeidan says. It is impossible to know if the same money would be spent without the Olympics, but Zeidan says the city’s revenues from Games infrastructure were temporary and the city acted accordingly.

No city or state in Brazil projected the scope of the current crisis, and Rio's steps managed to mitigate its effects to this point. Zeidan does not believe that Rio's lawmakers had the foresight to set the city up to be shielded from the crisis. He says, had some different decisions been taken, Rio could have easily ended up in a much poorer position, such as other municipalities in the state such as Macae.

"Take the State of Rio; authorities thought that royalties [experienced earlier this decade] would be increasing or at least stable forever and went on a populist binge," Zeidan said to ATR. "The city of Rio did not, but in my view more out of luck and some common sense [instead of] some great vision by policymakers."

Eduardo Paes’ mandate will be over on Dec. 31, with evangelical politician Marcelo Crivella assuming Rio’s mayoral position. Rio citizens have seemingly moved on from the Paes administration and the Olympic Games with Crivella’s election. Zeidan says that Crivella "will have some cushion" in preventing Rio from falling deeper into Brazil’s financial crisis, but plenty of work must continue to be done to prevent a possible backslide.

"Understand that because of the crisis and the lack of spotlight, revenues will fall and disbursements need to be adjusted accordingly," Zeidan said. "[Crivella must] keep investments in priority areas and slim down vanity projects that were only possible because of the temporary revenue boom."

Written by Aaron Bauer

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