The State of the Union: Brazil and the USA

Last week we witnessed Obama’s final State of the Union address. Since Brazil has no similar tradition, I was wondering if there was something we might learn from the American ritual. Specifically, the last of 4 questions that Obama raised seems pertinent to Brazil. Obama asked: “How can we make our politics reflect what’s best in us, and not what’s worst?”

Americans and Brazilians both express malaise and cynicism about politics and the “system”. The image of the US Congress is worse than practically any other institution. For example, Gallup’s Honesty and Ethic Poll finds that only 8% of the US population think that political representatives have high ethical standards. This is also the case in Brazil where Dilma has an only single digit approval rating yet even so tends to rank higher than politicians in general. Rejection of politicians illustrates a problem of legitimacy. This problem is not necessarily new or unique but rather seems to reflect dissatisfaction, anomie and alienation present in modern mass society.

Essentially, the political legitimacy needs building and rebuilding. Obama proposed a democratic solution where people participate and have voice in the process. Instead we find reduced civic participation and polls reflecting cynicism and disbelief which in turn lead to the rejection of politics or at least “rational” politics and opens up the possibility of the negative messianic or populist solution. Donald Trump is the latest version of this alternative in the US. Many on the left fear Brazil’s uniformed and fascist tendencies of the evangelical right while others still call for military intervention to stop “communism”.

Obama stated: “democracy requires basic bonds of trust between its citizens. It doesn’t work if we think the people who disagree with us are motivated by malice, it doesn’t work if we think that are political opponents are unpatriotic or trying to weaken America.” But this is exactly the situation that exists in the US Congress and in Brazil as well. In Brazil, the problem is even worse as the suspicion of dishonesty and corruption on a massive scale has proven to be true and seems to have touched all levels of government, public service and any private enterprise in its interaction with the government. This disenchantment and polarization result in unwillingness to compromise and further pushing apart of opposing sides.

Brazilians and Americans are discussing (separately) the need for political and economic reform. Obama pointed out that the US Congress chooses its electorate through the gerrymandering of safe districts. Brazilians are attempting a political reform, which may involve drawing districts and they already implemented a “clean slate” anti-corruption measure. Much of the reform in Brazil requires better basic education so voters can be perhaps more discerning and less subject to being “enchanted’ by short term populist promises and pay outs. In the US, the reform involves not only redistricting but also reducing the influence of well-financed special interests. In both places, the desire is for greater transparency and a sense that the system can function for the people and not only elite and entrenched interests.

In Brazil, the Constitution of 1988 provided excellent separation of powers and decent guarantees for democratic functioning. However, the Constitution in its 800 plus pages also incorporated protective clauses and amendments for virtually every interest group with a strong enough lobby. Thus Brazil today, in the midst of an economic depression, finds itself in a fiscal straight jacket. To reduce spending requires in almost every important area a constitutional amendment. Similarly, the electoral and representative structures are likewise enshrined and changes do not favor the sitting politicians so there is an impasse.

Obama’s term is over in terms of new initiatives. Dilma still has three more years but she lacks political savvy, creativeness, the ability to maneuver (jogo de cintura), political backing and is almost universally viewed with disdain by the establishment.

Some say there is a crisis on a world scale and that capitalism is failing to provide growth with opportunity. There is also a corresponding political crisis where people do not believe that their government can function as a democracy with equal treatment and equal opportunity.  While there is evidence for each of these assertions, the old socialist option is likewise discredited and we are still working on an alternative path.

The US has stronger and more viable institutions but these too are called into question. (Witness Bernie Sanders running as a democratic “socialist”.) Brazil’s institutions are much less tested and mature. In addition, they are suffering under the weight of demands that seemingly cannot be solved in the bounds of the system. Brazil needs to clearly define a path apart from state tutelage and a direction for civil society, which while sometimes vibrant, is mostly accommodated.

Is there despair? Yes, but the solution is not a coup d’état or a revolution. Rather, it should be the recognition that voting periodically within the rules, respect for the law and normal political participation and succession are important. Moreover, in the Brazilian case, it also requires accepting that the country is a capitalist one that can only make progress by gradually reducing the presence of the state to the basics. Brazilian state capitalism, as the Petrolao and other scandals show, is no longer viable given the size and complexity of the country’s productive structure. Does the private sector need regulation? Yes. Does the country need to continue to reduce inequality? Yes.

Obama affirmed: “This is America” manifesting faith and hope in institutions, leadership and process. Dilma has failed to provide a vision and failed to garner any substantive achievements. As a consequence, Brazil now faces a longer haul than might have been considered necessary but “That is Brazil.”

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Erros e Acertos nas Previsoes para 2015

Chegou a hora de avaliar os erros e acertos das previsões que fiz o ano passado. Aqui esta o link para minhas “profecias”:

https://allabroadconsulting.wordpress.com/2015/01/02/previsoes-para-2015-e-a-posse-da-presidenta/

Comecei o blog dizendo: “Por mais que a gente quer uma alteração de rumo, esta difícil enxergar o que pode mudar.” Como nada mudou, alias só piorou, acertei de cara.

Abaixo também cito as palavras ou promessas da Presidenta no seu discurso de posse. Ao que parece, ela ainda não cumpriu nenhuma e a idéia do lema de pátria educadora acabou banalizado com 3 ministros em 1 ano: Gomes, Janine, e Mercadante. Nenhum teve capacidade e/ou recursos para educar ninguém.

Teci previsões quanto a economia, a Petrobras e o setor primário. No geral, acertei.

A economia passou por um ano difícil com o PIB encolhendo mais de 3 por cento. Os preços de “commodities” (petróleo, soja, minério de ferro e celulose) caíram e o setor primário exportou em US$ aproximadamente 10% a menos em 2015 comparado com 2014. A Petrobras, que não quebrou (ainda), trocou de presidente e mesmo assim o valor das ações continuou caindo. Tenho amigos no mercado que acham que a PBR esta quebrada, e realmente estaria, se não fosse o “backup” do governo que não vai deixar o maior xodó do Brasil ir a bancarrota.

Errei grosseiramente na previsão de cambio. Sendo tímido e algo confiante no Real previ a mudança de 2.70 para apenas 3.10, ligeiramente acima de 10 por cento. Hora bolas, o ano terminou com o real encostando em 4 ou uma desvalorização de 50 por cento. Se 2016 for igual ou pior a 2015 então podemos esperar o real entre 6 e 7 em dezembro. Será?

Em principio, a desvalorização do real deveria ajudar as exportações mas como o Brasil exporta hoje basicamente commodities, os preços caíram e a demanda também. A industria que perdeu, ha’ tempos, seu mercado ainda não recuperou sua produção e nem seus clientes externos. Especificamente no setor automobilístico, o México já ultrapassou o Brasil em termos de produção e produtividade. Ai a falta de avanço acaba em atrasos e encolhimento de um setor que foi importante nas exportações e que hoje vai perdendo significância. O Brasil não produz exatamente “carroças” mas a produção não e’ de vanguarda e nem de altíssima qualidade.

Falei também de protestos e movimentos de rua. Tivemos sim, mas ainda não alteraram o quadro político. Ao final do ano, a movimentação de rua pro – Dilma estava talvez numericamente maior do que anti-Dilma. O povo esta cansado e resignado.

O ano passado, literalmente “achei estranho” que ninguém das grandes empreiteira havia sido preso. De repente no meio do ano, a PF prendeu Marcelo Odebrecht e outros executivos das maiores empresas de construção do Brasil. Então estava equivocado ou certo? Mais de seis meses presos sem acusação formal e negação de habeas corpus continua me parecendo estranho. Creio também que haverá algum tipo de leniência para os grandes empresários e Dilma já esta falando de um novo PAC de construção civil.

Transcrevo aqui as promessas que Dilma fez para o primeiro semestre de 2015.

  • transformar em crime e punir com rigor os agentes públicos que enriquecem sem justificativa ou não demonstrem a origem dos seus ganhos; 2) modificar a legislação eleitoral para transformar em crime a prática de caixa 2; 3) criar uma nova espécie de ação judicial que permita o confisco dos bens adquiridos de forma ilícita ou sem comprovação; 4) alterar a legislação para agilizar o julgamento de processos envolvendo o desvio de recursos públicos; e 5) criar uma nova estrutura no Poder Judiciário que dê maior agilidade e eficiência às investigações e processos movidos contra aqueles que possuem foro privilegiado. (Fonte: discurso de posse)

Como eu previ, nada disso aconteceu e nada esta na pauta do Congresso.

Finalmente, comentei a tentativa da Dilma em se afastar do Lula na nomeação dos ministros. O principal exemplo foi o Joaquin Levy que durou um ano. O substituto, Barbosa, embora não afiliado ao PT e’ muito mais próximo ao Lula e ao ex-ministro Mantega. Enfim, Dilma começou fraca e continua fraca e sem opções. Mas o pais também se ressente de alternativas e, a não ser que apareça uma prova contundente de corrupção da Presidenta, ela continuara ate o final.

Resumindo, acertei algumas e errei outras coisa. A avaliação pelo menos faz a gente refletir um pouco, para ver se apura as observações.

Brazil: Predictions for 2016

For several years now, I have risked annual predictions about Brazil. Some have been more prescient than others. They are offered with little pretense and as a personal reflection based upon feeling, experience, intuition and my interpretation of the facts.

It is well known that 2015 was a difficult year for Brazil. But the country hasn’t fallen off the map. And while 2016 will be at least as difficult, I expect improvements in the economy and general atmosphere by year’s end.

First off, Dilma will not be impeached as president in 2016.

On the other hand – and this is somewhat bold – Eduardo Cunha will be pushed out as president of the Chamber of Deputies. Renan Calheiros – president of the Senate – will survive only because he has done so in the past and is somewhat more discrete than Cunha. Furthermore, Renan and Dilma need each other.

The economy will shrink less in 2016 than it did in 2015. The current recession took 3 percent plus from the GDP in 2015. Dilma, with Lula’s support and new Finance Minister Barbosa’s agreement, will attempt to spend enough to stimulate the economy. The post Keynesian stimulus will fall short and the negative consequence will be inflation matching or exceeding the 10 plus percent of 2015. As in the rest of the world, those hurt most by inflation will be the poor, those on fixed income, and the new middle class (because of higher finance charges) and it will also worsen the political climate. In the worse case scenario, a lack of growth together with inflation will lead to more populist appeals from both the left and the right with sterile political debate and demagoguery.

On the plus side, the Olympics are coming to Rio this year. The games will be a success at least for television. Brazilians will have pride hosting. Rio will look marvelous and telegenic. Massive repression in the slums along with cooptation will suffice for temporary security and the problems of the violence from  favela based drug gangs and criminals. Solutions for Rio’s inadequate infrastructure (i.e. garbage in the bay, sewerage, etc.) will continue to be postponed. Eduardo Paes, – Rio’s mayor – will take credit for the success, even if it is pyrrhic. He will use this to launch an unsuccessful bid for the presidency in 2018.

After the Olympics, the legacy will be more debt for Brazil and increased inequality and social discrimination especially around Olympic sites. But this is nothing new in Brazil.

Brazil’s current mosquito crisis (resulting in dengue, zika and birth defects) is already a crisis but will be addressed. Paradoxically, major public health issues have brought out the best in Brazil’s creative problem solving. Witness how Brazil dealt with Aids and somehow the country will channel Osvaldo Cruz, Carlos Chagas and Vital Brasil (all well known contributors to public health) to at least make it past the Olympics. Hopefully, the current anti-corruption atmosphere will attenuate the possibility of a new public health scandal as we have witnessed in the past, for example when Jose Serra was Health Minister.

As for corruption, the Lava-Jato investigations will continue as will others into the Brazilian tax system, the National Development Bank, the Rio San Francisco irrigation project and on and on.

It remains to be seen if entrepreneurs will benefit from reduced terms and pardons. Many people want to pardon Lula’s grey eminence, Jose Dirceu, condemned in the Mensalao scandal and then swept up again in the Lava Jato. I don’t think Dirceu will be pardoned. But politicians have been luckier than entrepreneurs in penalty reduction.

It is basic for the Brazilian economy that, for any possible recovery through infrastructure projects, companies with the history and skill set of Odebrecht and Andrade Gutierrez be left somewhat in tact. Both companies, for example, are needed to complete the Olympic City and related infrastructure projects such as the subway and road access system. Leniency of some sort seems to be in the national interest in spite of the demands and need to punish corruption.

Outside of the Olympics, Brazil’s health, educational and physical infrastructure will continue to deteriorate. This decline will exacerbate the political problems that the Workers’ Party and Lula will face in the lead up to the 2018 presidential election. Unfortunately, the social and economic pact that Lula sewed together in 2002 has proven unsustainable in the long term. Instead of creating alternatives, Dilma’s policies have narrowed Brazil’s development options.  In spite of this, the depth of the problems actually tend to favor Dilma’s survival as any substitute will have limited time and political capital to deal with the ongoing problems that Dilma and her administration have exacerbated.

Petrobras will be forced to divest resources and assets. It remains to be seen if this will take place in production, refining or distribution. For Petrobras to survive (the Brazilian government will ensure its survival in some form), this restructuring and liquidation of assets must happen.

Brazil’s Central Bank still predicts over 50 billion in FDI (Foreign Direct Investment) even as Brazil’s credit rating has been downgraded by the three major international credit rating agencies.  Brazil is back to junk ratings but this is pretty much where the country has always been as the upgrades only took place in 2008.

Some of this will encourage foreign capital to take advantage of the weak currency buying opportunities of major Brazilian companies in retail, health, education, beauty cosmetics, media and even some industrial sectors.

Arms manufacturers Taurus and Rosetti will continue to sell their handguns. And once again, more than 50,000 Brazilians will die gun-related violence this year.

Agriculture will face a difficult year because of drought and lack of credit. Industry continues to contract.  Retail and wholesale already report end of the year declines in sales.  Pessimism reigns but the beaches are packed.

Even bankers may take a hit. Nevertheless, this retrenching will strengthen survivors and new businesses and new ideas always find Brazil’s size and still 2 trillion dollar economy attractive.

This year’s elections for mayors and city councils will happen take place uneventfully and may provide some indication of trends for 2018, but essentially municipal politics depend on local personalities and do not directly reflect party preferences at the national level.

Even as fares and the cost of public services increase with the new year, street demonstrations, strikes and protests will remain routine.  However, they will not be big enough or long lasting so as to change things one way or another.

At this point, the tendency will be to batten down the hatches and go into survival mode, something that Brazilians have often been forced to do.  We will increasingly focus on futbol and hope for Dunga’s successor and the always possible ressurection of the Selecao.

Family and friends will remain important as ever and the churrascos and festas will continue with maybe a little less “fartura” (abundance). So Brazil continues to attract and repel, encourage and disappoint, and remains the figurative and mythological land of the future always postponed.

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