Wall Street Journal, Hope Fades in Brazil for a World Cup Economic Boost

Prima en gedegen artikel in de Wall Street Journal over de maatschappelijke onvrede en eventuele politieke gevolgen in de aanloop naar het WK Voetbal in Brazilië.

 

Some long-term infrastructure projects, such as the Fortaleza light-rail, have been canceled amid budget overruns for stadiums. Reuters

Hope Fades in Brazil for a World Cup Economic Boost

Amid Unfinished or Canceled Infrastructure Projects, Hopes Wane That Soccer Tournament Spending Could Spur Long-Term Growth

By

John Lyons and

Loretta Chao

May 27, 2014 10:30 p.m. ET

A growing number of Brazilians are against hosting the World Cup, which they say has done little to improve infrastructure and public services. Photo: Getty Images

RIO DE JANEIRO—Not too long ago, Tarcísio Monteiro was so obsessed with World Cup soccer he bought a plastic World Cup trophy for his room in a cramped Rio de Janeiro slum.

Now that Brazil is hosting the event, he has become so angry about the money being spent that he joined mass protests against it. He bought goggles for the tear gas and hung them near his trophy.

"Look how many billions were spent on the Cup and how much got down to us," said the 38-year-old hotel worker, who lives in Rio's Santo Amaro slum, a labyrinth of narrow alleys not far from Maracanã stadium, where the Cup final will be played.

Mr. Monteiro's shift from World Cup fanatic to protester highlights a wave of disillusionment that has swept Brazil ahead of the event, which begins June 12. Such bitterness was once unimaginable. Passion for World Cup soccer runs so deep in Brazil—the winner of more Cups than any other nation—that people here say they live in a "country of soccer." Still, just 48% of Brazilians now say hosting it was a good idea, down from 79% in 2008, according to an April 8 poll by Brazil's Datafolha, the most recent.

The explanation goes beyond sports. For many Brazilians, the Cup has become a symbol of the unfulfilled promise of an economic boom for this South American nation. But the boom has fizzled. And now the World Cup's $11.5 billion price tag—the most expensive ever—and a list of unfinished construction projects have become reminders of the shortcomings that many believe keep Brazil poor: overwhelming bureaucracy, corruption and shortsighted policy-making that prioritizes grand projects over needs like education and health care.

"It's an affront, in a country with so many deficiencies in basic needs, to organize a Cup in this way," said Alcyr Leme, a São Paulo investment manager and lifelong soccer fan. Mr. Leme has fond memories of going to see Brazilian legend Pelé play in the 1960s. But he plans to watch this Cup at home. Buying game tickets would only condone the waste, he said.

Across Brazil, $3.6 billion in taxpayer money has been poured into stadiums, as much as the stadium bill for the past two Cups combined, and builders are still racing to finish. Meantime, work on airports, roads and other long term projects promised to benefit development in Brazil became hampered by bureaucratic squabbles, allegations of corruption and other obstacles. With days to go, the stadiums are mostly built, but the areas around them often resemble construction sites. (See a guide to Brazil's World Cup stadiums.)

In Natal, where the U.S. plays its first game, workers are hiding unfinished access ramps to the local stadium with coverings depicting beach scenes as a last-ditch cosmetic fix. The small northeastern city's politics became embroiled in debates over alleged contracting irregularities as it fell behind on promised roads and other structures.

In Fortaleza, another poor northeastern city hosting six games, builders finished the Castelão stadium for $230 million. But fans arriving at Fortaleza's airport will find a giant tent rather than a new planned terminal. Federal prosecutors are looking into whether corruption played a role in the failure of the $78 million terminal expansion project. Not far away, a planned light-rail to alleviate traffic is an unfinished stretch of rubble. It hit financial trouble and disputes over land ownership.

Griping over costs is expected these days in any country hosting a big sports event like the World Cup or the Olympic Games—which Brazil also hosts in 2016. But in Brazil, the Cup has become a catchall for a development conundrum that has long bedeviled it: How is it that a country with vast natural resources, such as iron ore, farmland and oil, remains poor?

Tarcísio Monteiro protested in February over World Cup spending. Kim Badawi for The Wall Street Journal

"The country of soccer is reacting to the waste, the unfinished infrastructure projects, the allegations of corruption, the poor quality of schools and hospitals, the poor use of resources," said Mailson da Nóbrega, a former Finance Minister of Brazil who now runs the Tendências economic think tank in São Paulo.

As visitors to the Cup will find out, Brazilians are upset at their leaders' organization of the Cup, but not their national team, called the Seleção, or the tournament itself, which are revered with almost religious sanctity in Brazil. Once the tournament begins, many businesses and schools are expected to close as the country becomes engrossed in noisy Seleção fervor.

But public dismay over perceived waste runs so deep that this is the first World Cup where major protests are a concern. In June 2013, a million Brazilians marched during a World Cup warm-up tournament to decry issues they said should take priority over stadiums, such as poor public transportation, and failing schools and hospitals. Outside games, police fired tear-gas at protesters holding banners saying "We Want FIFA Standard Schools," a play on the stadium standards required by soccer's organizing body.

Support for the big marches dwindled after some became violent and a television cameraman died covering one. All the same, Brazil is deploying a 157,000-person security force to contain smaller groups still vowing to disrupt the Cup. On Tuesday, protesters in Brasília disrupted an exhibition of the Cup trophy.

Harder to muzzle are critics, which even include Brazilian soccer stars who became disillusioned after acting as official Cup ambassadors, such as Ronaldo, a two-time Cup winner and its all-time leading scorer, and Romário, a star on the Brazil team that won the 1994 Cup. Now a congressman, Romário has publicly called it "the biggest heist in the history of Brazil."

It has become a political headache for Brazil's left-wing President Dilma Rousseff, who is seeking a second term in October elections. Analysts once predicted the monthlong Cup would launch a re-election campaign portraying her as an efficient leader. Instead, Ms. Rousseff will play a low-key role and has decided not to speak at the opener.

Ms. Rousseff has launched a drive to defend preparations for the Cup that includes TV ads. "The legacy of the Cup is ours. No one who comes here will leave with an airport, urban mobility projects, or stadiums, in their luggage," Ms. Rousseff told hotel and tourism workers in Brasília on May 15.

The government argues projects such as airports will eventually be finished and provide long-term benefits. Brazil estimates the Cup will generate some 380,000 jobs and attract 600,000 foreign tourists. The event is forecast to inject some $11.1 billion in advertising, airlines, hotels and other spending in the economy. But the jobs are largely temporary and, Moody's Investors Service predicts, the impact on Brazil's $2.2 trillion economy will be small.

Ms. Rousseff has had to compete with the dour assessments of senior FIFA official Jerome Valke, who publicly called working with Brazil's bureaucracy "hell" and admitted that "maybe there will be things that are not totally ready at the beginning of the World Cup."

In 2007, when Brazil was named host of this year's Cup, then President Luiz Inácio Lula da Silva presented it as a coming-out party for an emerging nation finally becoming prosperous. After decades of crashes, Brazil had a growing economy based on a steady currency. A new consumer class was rising among Brazil's poor. And with commodity prices rising, Brazil made some of the world's biggest oil finds off Rio de Janeiro. Brazil's stock market surged 44% in 2007. Rio was also awarded the Olympics two years later.

But Brazil's rise stalled. After notching 7.5% growth in 2010, the economy is now in its fourth year of a slump, partly sapped by the steep fall in commodity prices. The new consumer class ran out of steam after racking up big credit-card debts. Manufacturing fell into recession as high taxes and crumbling infrastructure stifled competitiveness. The big oil discoveries haven't borne fruit: Oil production has stagnated amid corruption and mismanagement scandals. In one, police are investigating why the state oil company Petrobras paid $1.2 billion for a Texas refinery valued earlier at $45 million. The company denied wrongdoing and defended the amount paid.

Public services like health care remain in dire shape even though a 2007 promotional video for the Cup promised "new hospitals" by now. Not far from the Fortaleza stadium, Ivanildo Lopes said he has been waiting a year to get a painful 1-inch kidney stone removed. That is common, says Florentino Cardoso, president of the Brazilian Medical Association.

In Brazil, the child mortality rate is twice that of the U.S., and access to doctors is so limited the country began importing them from Cuba in 2013. Government investment in health care has remained flat as a percentage of GDP in recent years, according to the medical association. A Health Ministry spokeswoman said its budget increases each year and declined to comment on long waits.

Initially, Brazil's government said it would find private funding for the stadiums, and set aside taxpayer funds for projects that would provide a long-term boost to the economy. The most important of these would be improved public transportation in a country where some big cities have no subway and workers take multihour rides on muggy buses.

In the end, stadiums were built almost exclusively with taxpayer money as their costs quadrupled and private lenders questioned stadiums' future profitability.

Take the Cup's opening game, to be held in a brand-new 62,000-seat stadium that will be owned by São Paulo's Corinthians soccer team after the Cup. The $550 million stadium was financed with government loans and $200 million in local tax breaks, because the heavily indebted Corinthians couldn't find private lenders.

Meantime, few major transportation projects were completed. The signature project was to be a $16 billion bullet train between Rio and São Paulo. Latin America's first high-speed bullet train would be running by the World Cup and be complete by the Olympics, a then-cabinet chief Ms. Rousseff said in 2009. The project was to be the foundation of a new state train company that could spread fast trains throughout Brazil.

Brazil put the São Paulo-Rio rail project out to bid in 2010, and then-President da Silva used the bidding ceremony to rebut critics of Brazil's preparations. "They are already pressuring us: Where are the airports? Where is the subway? As though we were a bunch of idiots who don't know how to do things," Mr. da Silva said.

But that 2010 bidding round was canceled. Potential rail builders balked on concerns that government-set limits on fare prices meant the train might not be profitable. Firms also feared cost overruns since Brazil's legal system makes it easy for a single lawsuit to shut down a project. Brazil tried and failed to come up with terms that made sense. Bid rounds were announced and canceled three more times before the government shelved the project in 2013.

Allegations of possible corruption have also arisen. The cost to build a 69,000 seat stadium in the capital Brasília rose 68% to $636 million—and could go higher once all the bills are in, according to a 141-page report by a city auditor. The report found "grave irregularities" were a key cause of the bloated budget, from overbilling for transportation to a suspicious 12.1% loss rate on steel. No charges have been filed. The builder of the stadium, Andrade Gutierrez SA, declined to comment.

Brazil also tried to do too much, critics say. The Cup is taking place in a dozen cities, even though FIFA asked for only eight. The idea was to spread the benefits across the nation. But smaller cities got overwhelmed. And four Cup cities don't have big soccer teams, so their stadiums may be unused after the Cup—another reason private lenders balked at chipping in to build them. The Amazon city Manaus got a 39,000 seat stadium, but its biggest local games barely draw 1,500 fans.

The city's plans for a monorail, meanwhile, never got off the drawing board. Federal prosecutors found so many budget irregularities that a judge shut the project down.

The 12-city Cup was a boon to Brazilian construction companies such as Andrade Gutierrez and Odebrecht SA, which built many of the stadiums. But even Odebrecht Chief Executive Marcelo Odebrecht has said Brazil would have been better off with just eight host cities. "The legacy of the World Cup on infrastructure was much less than expected," Mr. Odebrecht said.

The Cup's best legacy may be at its long decaying, military-run airports, experts say. To give them a face-lift, Brazil decided to turn several over to private operators charged with upgrades such as new terminals.

But the process was delayed by years as government officials argued over how much control the new private operators should get and for how long. As a result, the São Paulo and Brasília airports were privatized only in February 2012. In São Paulo, the operator managed to build a new terminal in just a year and a half. But with so little lead time, there has been almost no noticeable improvement at São Paulo's dank main terminal, which handles the bulk of international traffic.

Mr. Monteiro, the World Cup fan-turned-protester, says he won't benefit much from the airport projects. Born in the impoverished northeastern state of Bahia, Mr. Monteiro dropped out of school at 13 to work and help his family. Today he is one of the 70 million Brazilians over 25 who never finished high school.

As Brazil's economy grew, he moved to Rio in search of a better life, and landed in a cramped room in a rough Rio slum. He found a job as a pool boy at a major hotel and started going to night school.

But Mr. Monteiro's education stalled—his grammar school hadn't even prepared him for night school. Rio beefed up security, but Mr. Monteiro's slum is still a dangerous place. Planned transportation projects never reached him: he walks miles from his favela home to work each way.

When Mr. Monteiro saw demonstrators taking to the streets in cities across Brazil in June 2013, something clicked. Brazil was supposedly on the rise, but his life was no better. He ran out into the streets and found himself among youths wearing all black and clashing with police. The violence he saw unnerved him but it also matched his rage.

These days, he no longer thinks violence works. But he has a child on the way and his optimism is gone. "I worry about whether I can provide a good life for my son," he said.