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  • Aug 29, 2014
  • Updated: 6:59pm
PUBLISHED : Monday, 24 June, 2013, 12:00am
UPDATED : Monday, 24 June, 2013, 5:58am

Rising economic stress behind protests in Brazil and Turkey

When times are good, people are happy to ignore politics, but, as the unrest in Sao Paulo and Istanbul attests, things can change dramatically

There is a school of thought that all popular political uprisings have economic causes.

So, for example, the Communist Party's 1949 victory in China's civil war was attributable not to the justice of its cause, nor even to superior military strategy, but rather to runaway inflation under the Nationalist government.

Similarly, the Arab Spring of 2011 was triggered by the twin blows of rising food prices and a growth slowdown caused by the euro-zone crisis.

Closer to home, Hong Kong's 500,000-strong demonstration of July 1, 2003, may on the face of it have been a protest against the government's proposed anti-sedition law. But behind the discontent stood 8 per cent unemployment, declining incomes, and a deflationary trend that had seen the value of home-owners' properties fall by two-thirds in just six years.

As with China, Tunisia and Hong Kong in past years, so with the popular protests in Brazil and Turkey today.

Both economies benefited enormously from the long period of low interest rates and plentiful liquidity that followed the dotcom bust of 2000. Both became favourites with rich investors.

Famously, Goldman Sachs tagged Brazil as one of the BRIC emerging super-economies, along with Russia, India and China. Money duly poured in.

Yet despite being on the receiving end of the global commodity boom, growth rates in Brazil struggled to approach those of China or India. The high point came in 2010, when annual growth surged on a tide of liquidity to hit 7.5 per cent.

However, the influx pushed Brazil's currency higher, eroding the country's competitiveness. Meanwhile, the government instituted generous welfare programmes that pushed state spending up to 40 per cent of output, fuelling inflation and crowding out productive investment.

As a result, growth slumped below 1 per cent last year, and money began to flee the country. The local stock market has fallen 23 per cent so far this year. With international liquidity now tightening, commodity prices weakening, and the central bank forced to intervene to prop up the currency, Brazil's economic prospects are rapidly deteriorating even as discontent mounts.

In the 2000s, Turkey also emerged as an investors' darling. Following the lira crisis of 2002, the incoming government of prime minister Recep Tayyip Erdogan won praise for stabilising the currency, defeating inflation and bringing down interest rates.

Flushed with its success, the government embarked on a major investment programme of infrastructure spending, which helped push growth rates up to 7 per cent or more in the years preceding the financial crisis.

More recently, however, economics has taken a back seat to politics, as the government has launched a series of trophy projects, like a giant (15,000 square metres) mosque on one of the last green hilltops overlooking Istanbul and the proposal to build a shopping mall in place of the city's Gezi park which triggered this month's protests.

Unfortunately, with a low domestic savings rate, the spending has been funded largely with foreign debt, which has now climbed to 40 per cent of GDP. Much it is short-term.

Meanwhile, the euro crisis and the war in Syria have hit tourism revenues. The tens of thousands of Syrians that used to visit Turkey each week to go shopping have been replaced by refugees.

Last year, economic growth fell to just 2 per cent. Now, with short-term capital leaving the country in a hurry, financial stresses are multiplying. The local stock market is down 23 per cent in the last month alone, while the lira is sliding fast.

All of which demonstrates an old truth: when times are good, people are happy to ignore politics. But when the economy turns down, political grievances rapidly become a focus for mass discontent.



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Great column,but seems to contradict previous Holland columns that China could come out of a financial downturn with no serious impact on the CCP monopoly of power.
There are parallels between Turkey, Brazil and China. Positive review by international investors leading to high growth, and then government hubris with excessive spending on dubious government "investments" leading to low growth and financial instability followed by political instability.
Turkey's current problems are mainly self-inflicted. Their elected leader chose to assist with the arming of rebels trying to overthrow Syria's Assad. The previously stable and quite prosperous Syria is now becoming yet another Western destroyed Middle-Eastern nation. This is what ill-conceived and forced ‘democracy’ brings. And this is why Western interference is now seriously affecting Turkey.
Western democracies now have a worse track record of suppressing their own peoples’ aspirations than any of the world’s recent dictators. Tear smoke and police batons are the norm now for demonstrators under “freedom and democracy”. Meanwhile their governments corrupted security agencies spy on their own people to a far greater extent than any Marxist government has done in the past.
All true... as long we conveniently ignore the fact that often such economic slowdowns or worse are also caused by government policies, or a government's failure to deal with external challenges, such as was/is the case with Hong Kong.

Both Brazil and Turkey have known economic successes in the past decade, for which their governments deserve a good deal of credit. Yet, both also implemented wrong-headed policies that have led to economic hardship. Mr Holland mentions a number of them in this column.

That people are now protesting against the governments that put these policies in place is not just because they just want bread and games, it is because there is a direct, causal link between these governments and the impact of their policies on these people's livelihood, not because there is a couple of thousand fewer tourist visits.

To conclude that people mostly protest against the government in times of economic hardship is kicking in an open door. An equally uninteresting observation would be that people only complain about medical malfeasance, mistaken doctors, hospital errors and so on when they experience such things during an illness. While they are healthy, nobody complains. Rather obvious, I would say.


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