camberiu
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Short summary:
In 2003 the Lula and his Worker's party got the presidency. Up until 2008, they followed the model adopted by the previous government, called the "triangle of stability": Balanced budgets, floating exchange rates, Independent Central Bank. By 2008, all the "pragmatics" within the Lula administration had to resign due to accusations of corruption. Lula then brought in the old communist guerrilla hard liners and union leaders into his administration. Dilma was amongst them. It was also the year in which they found massive oil reserves off the coast. The policies of the "triangle of stability" were completely reversed. Government banks (BNDES, Caixa and Banco do Brasil) were ordered to give out low interest loans to pretty much anyone. Billionaire Eike Baptista took billions from those banks to invest in oil exploration, build semiconductor plants and bio-diesel plants. The government would give any worker with a formal job up to R$100,000 to buy a home. Overnight R$100,000 became the price floor for every home in Brazil, no matter how crappy. A huge construction boom started, as massive amounts of government credit flooded the real estate market. Home prices sky rocketed and there was a shortage of construction workers. Wages went up.
The state owned Petrobras was given to a union leader friend of Lula. He immediately ordered the construction of a US$17 billion oil refinery in Lula's home state of Pernanbuco. Most analyst from Petrobras thought that the refinery was unnecessary and Pernambuco was not the best place for it. The union leader also ordered the construction a massive shipyard also in the state of Pernambuco, the "Estaleiro Atlantico Sul". Pernambuco until then had no tradition of industry or qualified labor or the infrastructure to support such shipyard. The shipyard was also ordered to build the largest oil tanker in the history world, the "Joao Candido". In 2009 Petrobras acquires the Pasadena refinery in Texas for US$820 million from a Belgian company, who had acquired that same refinery 4 years before for US$42 million. So, Petrobras made a lot of bad investments.
So, what happened.
Brazilian families got into serious debt. Eike Baptista, who borrowed billions from government banks, went bankrupt and the tax payers were left holding the bag. Petrobras became the most indebted oil company in the world. Most of its very bad investments tanked as multiple corruption scandals surfaced, where politically appointed Petrobras executives would demand bribes from suppliers and contractors in order to give them business. They pocketed part of the money, the other part went to the Worker's party campaign fund. The police uncovered so far that more than US$800 million were paid in bribes.
So, Petrobras is broke.
All government banks are sitting in hundreds of billions of dollars in bad loans.
Government finances are shot, with the largest government deficit since the 90s.
All companies suspected of paying bribes to Petrobras had all government contracts suspended pending independent audit. This means that constructions of bridges, subways, powerplants, roads have all been put on hold. Two of them have gone out of business, firing tens of thousands of construction workers. More are expected to fold.
The real estate bubble has burst. Apartment buildings are sitting empty across the country. People got into debt expecting the value of their "investment" to grow. Now inflation is rising quickly and with it, will the value of their installments. So people are seeing their monthly payments go up while the value of their "investment" plummets. Overly leveraged contractors are sitting in tons of unsold real estate inventory. Many have folded, resulting in many more layoffs.
The fear now is that the police will uncover similar corruption scandals in the state owned banks and utility companies.
