An extreme weather event causing unprecedented flooding and destruction in Brazil’s Rio Grande do Sul state could significantly change the country’s economic and political landscape.
The full scale of the disaster is not yet known, but the situation could worsen as more rain is expected and water is only slowly receding from the region’s topography.
So far, 100 people have been killed, thousands left homeless, and extensive infrastructure damage has occurred.
The Brazilian government and Congress are discussing the introduction of additional funds that are not part of the public budget to support mitigation and recovery efforts.
Inflation could also rise because the state is a major producer of rice and beans, the most popular food items in the country.
Economists have expressed concern that without compensatory measures to rein in spending, spending will rise and inflation will rise as a result.
“There is no doubt that the situation in Rio Grande do Sul does indeed require support from the federal government, but we must be careful how this is done. Extreme weather events occur every year. “The solution would be for governments to include projects that reduce such risks in their annual budgets,” Luciano Rostagno, chief strategist at EPS Investments, told BNamericas. .
“Investors are concerned that there is currently an attempt to include extraordinary spending as a reactive measure rather than a preventative measure, giving room for unchecked fiscal spending,” Rostagno said. Stated.
The Ministry of Transport recently announced that it would approve at least R$1 billion (US$196 million) to repair the state’s road infrastructure, which is not included in this year’s budget. However, the extent of the damage is not yet known, and funding may need to be increased.
On the political front, President Luiz Inácio Lula da Silva, whose approval ratings are declining, has stepped up efforts to serve the affected areas and fend off criticism for his slow response. He ordered all his cabinet members to focus on issues related to Rio Grande do Sul.
“Lula can use his involvement in events in Rio Grande do Sul to his advantage in the polls, but Brazil has a strong social media disinformation network that constantly attacks the federal government. “There are two sides to this coin,” Mario Sergio Lima, an analyst at Medley Global Advisors, told BNamericas.
Another major event, the COVID-19 pandemic, led to the 2022 election, when Lula’s predecessor Jair Bolsonaro’s response was perceived as erratic and inadequate. It is widely seen as having helped defeat Jair Bolsonaro.