Latest / Stephanomics / Why Brazil's Lula May Tack Toward the Center

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Why Brazil's Lula May Tack Toward the Center · Stephanomics

• 0:04
  Speaker 1: Hello, Stephanomics here the podcast that brings you the global economy.
• 0:07
  Speaker 1: This week focused on two very important elections, one coming
• 0:11
  Speaker 1: up and the other just happened. The one that's happened,
• 0:15
  Speaker 1: which will probably turn out to be more important for
• 0:17
  Speaker 1: the planet, was the Brazilian presidential election, and the winner,
• 0:21
  Speaker 1: as you'll definitely all know by now, was lauish in
• 0:24
  Speaker 1: Nasciodis Silva, universally known as Lula. He's already served two
• 0:28
  Speaker 1: terms as president up until he also served prison time
• 0:33
  Speaker 1: barely two years ago for corruption and money laundering. Investors
• 0:38
  Speaker 1: had been frightened when this left wing populist was elected
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  Speaker 1: the first time around. Now they seem to be relieved.
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  Speaker 1: But what happens next? Maria Eloisa Carburero in Brazilia has
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  Speaker 1: an on the ground report in a few minutes. But
• 0:53
  Speaker 1: first I thought we should talk about the US mid
• 0:55
  Speaker 1: term elections on November eight, which you'd think would be
• 0:59
  Speaker 1: heavily influenced by what's happening in the US economy, but
• 1:02
  Speaker 1: maybe not. Let's talk it all through with Bloomberg Chief
• 1:06
  Speaker 1: US Economists and A Wong and Bloomberg's White House reporter
• 1:10
  Speaker 1: Nancy Cook. Now, Anna, we have every congressional seat and
• 1:15
  Speaker 1: a third of the seats in the Senate up for
• 1:16
  Speaker 1: grabs in this election. Before we get to how the
• 1:19
  Speaker 1: economy has or has not changed the race in different
• 1:23
  Speaker 1: parts of the country, I guess you should just paint
• 1:25
  Speaker 1: a scene for US. Inflation is obviously the highest we've
• 1:29
  Speaker 1: seen in many years in the US, but it's not
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  Speaker 1: a straightforward um sort of economic crisis story. Im in
• 1:36
  Speaker 1: the US is not in recession. We're not seeing a
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  Speaker 1: big rising unemployment. So so how's the economy looking? Well,
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  Speaker 1: First of all, people feel very gloomy about the future,
• 1:47
  Speaker 1: But if you look at the fundamentals, such as the
• 1:50
  Speaker 1: actual spending, how much people have in the bank account,
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  Speaker 1: UM jobs out there, the actual labor income growth for
• 2:00
  Speaker 1: the past twelve months, it's actually better than UM many
• 2:04
  Speaker 1: many years, for decades, in fact, the best in a
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  Speaker 1: couple of decades. And the reason why people feel gloomier
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  Speaker 1: than the fundamentals would predict that they would feel it
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  Speaker 1: is because of inflation. And I know research on people's
• 2:20
  Speaker 1: psychology is not strong suit of economists, but sociologists and
• 2:25
  Speaker 1: other fields have shown that people just feel like they're
• 2:29
  Speaker 1: cheated whenever inflation is high, Right, you even if your
• 2:33
  Speaker 1: nominal income rise at the same pace as inflation. People
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  Speaker 1: just feel cheated when inflation is eroding their nominal income.
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  Speaker 1: I guess we should just clarify because there has been
• 2:46
  Speaker 1: I mean, I know Larry Summons has talked about how
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  Speaker 1: most people's real wages have been going down even though
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  Speaker 1: the nominal is high. So for for a big chunk
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  Speaker 1: of the workforce, I guess it wages are not quite
• 2:54
  Speaker 1: keeping up with inflation, or you would say if they
• 2:57
  Speaker 1: are keeping up well, I would say for the lower
• 3:01
  Speaker 1: income household, we see that nominal income growth at the
• 3:05
  Speaker 1: bottom quartile of workers are actually catching up with inflation.
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  Speaker 1: The wage growth was at ten or eleven percent at
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  Speaker 1: the bottom of the workers. So for those workers, I
• 3:19
  Speaker 1: would say their real income is catching up to you know,
• 3:23
  Speaker 1: actually has been positive over the past twelve months. Be
• 3:26
  Speaker 1: for the top half of the workers, I would say
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  Speaker 1: that the real real wage has been declining over the
• 3:35
  Speaker 1: past twelve months. So, and Nancy, we heard from an
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  Speaker 1: on paper, although we have this high inflation, we do
• 3:43
  Speaker 1: have still an extremely low unemployment rate. Incomes have either
• 3:48
  Speaker 1: been keeping up with inflation or almost keeping up with inflation.
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  Speaker 1: You've paid a lot of attention to to these campaigns
• 3:55
  Speaker 1: and how the White House has been dealing with them.
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  Speaker 1: How how would you what's been more salient on the
• 4:01
  Speaker 1: campaign trail, inflation, jobs, or other things entirely like the
• 4:06
  Speaker 1: change in the abortion rules. So we've seen lately in
• 4:11
  Speaker 1: poll after poll, voters um are really saying that the
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  Speaker 1: most dominant issue to them and the one that they
• 4:16
  Speaker 1: plan to vote on is a combination of the economy
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  Speaker 1: and inflation. In the closing weeks of this campaign, inflation
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  Speaker 1: has really become the dominant issue. I would say over
• 4:27
  Speaker 1: the summer, Democrats were very hopeful actually, and they felt
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  Speaker 1: like their messages on abortion rights, threats to democracy, what
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  Speaker 1: they saw as extremism on the part of Republicans in
• 4:40
  Speaker 1: terms of some of their policy proposals. Democrats really felt
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  Speaker 1: like that would help them potentially stave off much larger
• 4:47
  Speaker 1: losses in the midterms. So you know, historically the party
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  Speaker 1: in power always loses some seats in the mid terms.
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  Speaker 1: But I think Democrats in July and August really felt
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  Speaker 1: much more optimistic. You've seen a real sea change. It's
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  Speaker 1: altading in September, I would say, uh into October, where
• 5:03
  Speaker 1: Democrats are starting to grow much more pessimistic. The economy
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  Speaker 1: has become the main issue. Gas prices have fluctuated and
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  Speaker 1: that has definitely hurt people's perception of the economy. And
• 5:14
  Speaker 1: another thing that we've seen is the housing market in
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  Speaker 1: the US has started to cool as the FED keeps
• 5:18
  Speaker 1: raising interest rates, and so that is also affecting people,
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  Speaker 1: and the White House is aware that that. You know,
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  Speaker 1: while some economists believe inflation has peaked, things like food
• 5:29
  Speaker 1: prices and also the prices for you know, housing have
• 5:34
  Speaker 1: remained high, and those are really what the majority of
• 5:37
  Speaker 1: Americans spend their money on. And so even if you
• 5:40
  Speaker 1: have you know, some wonky White House economist on TV saying, look,
• 5:43
  Speaker 1: we think inflation has peaked, that doesn't necessarily mean that
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  Speaker 1: these key voters that the White House needs to win over,
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  Speaker 1: like women, suburban women, independence, that's a message that they're
• 5:54
  Speaker 1: going to be receptive to if they're seeing high prices
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  Speaker 1: at the grocery store, fluctuating gas prices, and like maybe
• 6:00
  Speaker 1: let's say their rent has gone up a lot. I
• 6:02
  Speaker 1: do remember when various attempts earlier in the year by
• 6:07
  Speaker 1: President Biden to talk about the putin price hike and
• 6:10
  Speaker 1: too blame President putin for high inflation. That hasn't really stuck, right,
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  Speaker 1: I mean, have Republicans successfully been able to blame the
• 6:20
  Speaker 1: Biden administration for high inflation. The Republicans are trying to
• 6:24
  Speaker 1: make this election a report card on President Biden and
• 6:28
  Speaker 1: his leadership of the economy. What the White House has
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  Speaker 1: been trying to do is make this, particularly lately into
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  Speaker 1: a choice between the two parties. And they're trying to say,
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  Speaker 1: you know, look, we understand inflation is high, but we're
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  Speaker 1: doing all these things. You know, We've released u of Danas,
• 6:43
  Speaker 1: strategic released from the Strategic Petroleum Reserve. We passed this
• 6:48
  Speaker 1: sweeping legislation in August that's meant to bring down inflation
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  Speaker 1: and control some prices, particularly for seniors on prescription drugs.
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  Speaker 1: The inflation reduction exactly many people another country sounded a
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  Speaker 1: bit silly, but anyway, well it was branded with the
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  Speaker 1: elections in mind. Um. But and what they're trying to
• 7:08
  Speaker 1: say is like, look at the things we've done. We
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  Speaker 1: know that you're in pain but with the high prices,
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  Speaker 1: but we've tried to do all these things and we're
• 7:14
  Speaker 1: doing everything we can. And by the way, the White
• 7:17
  Speaker 1: House says, you know, inflation is really the purview of
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  Speaker 1: the Federal Reserve, And what they're trying to say is
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  Speaker 1: if Republicans control things again like Congress, they don't have
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  Speaker 1: a plan to cover inflation. Meanwhile, Republicans just keep sort
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  Speaker 1: of bringing up things that are happening every day, like
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  Speaker 1: the everyday costs, and they're really hammering the White House
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  Speaker 1: on this, and they have just had a great amount
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  Speaker 1: of success in recent weeks sort of driving the inflation
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  Speaker 1: economy message home, combined with a renew focus on crime.
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  Speaker 1: There's a lot of crime in American cities now, and
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  Speaker 1: I think that those are messages that are really speaking
• 7:50
  Speaker 1: to voters doing mid terms. That you can have very
• 7:54
  Speaker 1: different campaigns in different parts of the country for specific
• 7:59
  Speaker 1: Senate seats or or even specific congressional seats. So are
• 8:02
  Speaker 1: our economic geographical economic differences playing into different kinds of campaigns.
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  Speaker 1: They certainly are. And you see also different candidates trying
• 8:12
  Speaker 1: to tail their tailor their message to different voting groups.
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  Speaker 1: So for instance, um, you know, Bloomberg Economics did this
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  Speaker 1: great thing called the Misery Index, which looks at where
• 8:22
  Speaker 1: Americans are most miserable, and so what we've seen in
• 8:26
  Speaker 1: the Midwest part of the country. Uh, you know, the
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  Speaker 1: combination of sort of inflation and employment is not as bad.
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  Speaker 1: But in other places where there are key Senate races,
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  Speaker 1: like Arizona and Nevada, the misery index is very high.
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  Speaker 1: And so, for instance, in Arizona, we've seen the Democratic
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  Speaker 1: candidate there, Mark Kelly, really try to tailor his message
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  Speaker 1: and steer clear of Biden. You know, Biden has not
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  Speaker 1: gone anywhere near Arizona and really try to tailor his
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  Speaker 1: message to the huge number of Latino voters that Democrats
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  Speaker 1: are trying to woo, who polsters tell me have been
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  Speaker 1: very concerned about inflation, and so he is trying to
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  Speaker 1: talk to that group specifically. We've seen in Nevada Democrats
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  Speaker 1: really trying to turn out to union forces. There's a
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  Speaker 1: you know, a bunch of the casino workers are unionized,
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  Speaker 1: so they're really trying to speak to those groups and
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  Speaker 1: and appear friendly to labor um and speak to those
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  Speaker 1: people about high prices. But again President Biden has steered
• 9:19
  Speaker 1: clear of Nevada too, So so it's an interesting thing
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  Speaker 1: where the economy is being experienced differently in different states
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  Speaker 1: of the country, and each Senate race is sort of
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  Speaker 1: its own little microcosm of what is happening in the
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  Speaker 1: economy and what those themes are. Well, Anna Wong, that's
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  Speaker 1: a there's a good segue to you. I guess you
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  Speaker 1: should remind us what the misery indexes, and I think
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  Speaker 1: also remind us of this discussion that we've had I
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  Speaker 1: think in the past about how how you can it
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  Speaker 1: could potentially be that that higher inflation is more politically
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  Speaker 1: damaging than high unemployment because of the larger number of
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  Speaker 1: people that affects. Yeah, So misery index is the sum
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  Speaker 1: of unimployed i'm in rate and the inflation rate. And
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  Speaker 1: whereas unemployment uh as I mean, as Stephanie said, unemployment
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  Speaker 1: um affect only a small portion of the population. Inflation
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  Speaker 1: is felt by every household, and in fact, in the
• 10:16
  Speaker 1: lower income household who spent a higher share of their
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  Speaker 1: budget on gasoline and food, they feel it more. And
• 10:24
  Speaker 1: to Nancy's point about the geographic distant distribution of this
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  Speaker 1: misery that's being felt differently in this country, we have found,
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  Speaker 1: based on misery index at state level, that the Red
• 10:37
  Speaker 1: States misery was higher and in fact worsened more under
• 10:42
  Speaker 1: the Biden years than during the Trump years, and it
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  Speaker 1: is a very clear trend, and that could explain why
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  Speaker 1: Red states are the voters here are more passionate about
• 10:54
  Speaker 1: UM going out to the vote. And the reason why
• 10:57
  Speaker 1: missoury has worsened in Red state it's more so than
• 11:01
  Speaker 1: the Blue States, was because the Red States never really
• 11:04
  Speaker 1: locked down as hard as the Blue States. So they're there,
• 11:09
  Speaker 1: their local economy was already growing at sort of capacity
• 11:13
  Speaker 1: before UM everybody opened up right then after everybody opened
• 11:18
  Speaker 1: up that and with the American Rescue Act, the inflation
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  Speaker 1: impulse further hit these Red states more because they were
• 11:25
  Speaker 1: operating close to capacity even before. Hence we see that
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  Speaker 1: Red States has generally higher inflation than Blue states. You know,
• 11:35
  Speaker 1: you've been that really ahead of the game, ahead of
• 11:37
  Speaker 1: many other forecasters this year, not only in predicting where
• 11:41
  Speaker 1: that Federal Reserve interest rate was going to go, way
• 11:45
  Speaker 1: ahead of anyone else, expecting that to maybe get as
• 11:47
  Speaker 1: high as five, but also expecting inflation to go higher
• 11:51
  Speaker 1: for longer than many expected. So two years time general election,
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  Speaker 1: what what do your forecast say is the economy that
• 12:00
  Speaker 1: President Biden potentially will be trying to get re election on.
• 12:04
  Speaker 1: So our base cases for the for a recession to
• 12:07
  Speaker 1: begin in the third quarter of so by November four
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  Speaker 1: I would predict that economy would be gradually improving. But
• 12:18
  Speaker 1: given that my forecast is also for the FED to
• 12:21
  Speaker 1: only begin to cut rates in perhaps around you know, springtime,
• 12:28
  Speaker 1: at the economy would only be in the nascent stage
• 12:32
  Speaker 1: of turning around. Unemployment would be at five percent at
• 12:36
  Speaker 1: that point. It will be pretty bad for Biden's election campaign. So, Nancy,
• 12:41
  Speaker 1: we have now kind of been started to look into
• 12:43
  Speaker 1: the future. So tell us what's your best guess of
• 12:46
  Speaker 1: the election outcome, the mid term election outcome, and briefly
• 12:50
  Speaker 1: what that might mean for US economic policy making over
• 12:53
  Speaker 1: the next couple of years. So I've talked to a
• 12:55
  Speaker 1: bunch of posters and Democratic strategies this week, and there
• 12:58
  Speaker 1: is sort of a wide concert says that Democrats will
• 13:01
  Speaker 1: lose the House. It's just a matter of by how
• 13:04
  Speaker 1: wide of a margin. Um. A lot of people think
• 13:07
  Speaker 1: that the Democrats it. The Senate is a little bit
• 13:09
  Speaker 1: more unclear, um. But I think if they have divided government,
• 13:13
  Speaker 1: even if Republicans just control the House, it means that
• 13:16
  Speaker 1: there will be very little economic policy making within the
• 13:20
  Speaker 1: Biden White House. There won't be any big legislative sweeping packages.
• 13:24
  Speaker 1: And what typically happens in year three and four of
• 13:27
  Speaker 1: a presidency if there's divided government is that the economic
• 13:30
  Speaker 1: policy making is really relegated to just regulatory stuff, so
• 13:35
  Speaker 1: things done out of agencies, rules being rewritten. The president
• 13:39
  Speaker 1: will turn much more to foreign policy, and perhaps there'll
• 13:42
  Speaker 1: be some things done on some international economic issues. Um
• 13:46
  Speaker 1: he can continue to talk about the Chips Act. Maybe
• 13:49
  Speaker 1: they will do something on trade, although they've been very
• 13:52
  Speaker 1: reluctant to do anything on the Chinese tariffs. But those
• 13:55
  Speaker 1: will really be the areas that I will be looking for.
• 13:57
  Speaker 1: I don't think there will be much happening out of
• 14:00
  Speaker 1: the White House and the domestic economic France. We don't
• 14:03
  Speaker 1: know whether it will be good news for America's but
• 14:04
  Speaker 1: it's bad news for people covering US economic policy. Nancy
• 14:08
  Speaker 1: Cook and Anna Wong, thank you so much. Now, Even
• 14:14
  Speaker 1: by US standards, the battle for the Brazilian presidency was brutal,
• 14:18
  Speaker 1: almost certainly the toughest contest in Brazil's forty odd years
• 14:22
  Speaker 1: of democracy, and the margin of victory was small, just
• 14:25
  Speaker 1: under two percentage points, but two percent of the vote
• 14:29
  Speaker 1: in Brazil equates to two million extra votes cast for Lula,
• 14:34
  Speaker 1: and despite some complaints about fraud in the electoral system
• 14:38
  Speaker 1: and demonstrations on the streets by supporters of the now
• 14:41
  Speaker 1: outgoing president Jao Boltonaro, it looks like two million votes
• 14:46
  Speaker 1: is going to be enough to secure a peaceful transfer
• 14:49
  Speaker 1: of power. But what kind of economy does president elect
• 14:52
  Speaker 1: Lula inherit? Does he have the team the resources to
• 14:56
  Speaker 1: deliver on his promises. Here's Maria Eloisa Caporo in Brazilia
• 15:05
  Speaker 1: M M. Louise in Ala da Silva. Lula, as Brazilians
• 15:17
  Speaker 1: known him, is returning to the presidency after two prior
• 15:24
  Speaker 1: terms in office. In geology two thousand's the intervening years
• 15:29
  Speaker 1: having colorful to say the least. He spent more than
• 15:34
  Speaker 1: a year in jail for accusations of his involvement in
• 15:38
  Speaker 1: a corruption scheme known as car was Wash, and his
• 15:42
  Speaker 1: presidential campaign was tighter than expected, with supporters of incumbent
• 15:48
  Speaker 1: Jairbelsonao a majority in Congress. But Lula has promised vertier
• 15:54
  Speaker 1: times health and his supporters are hopeful he'll deliver. Here's
• 16:00
  Speaker 1: some of them singing one of the most famous campaign slogans.
• 16:05
  Speaker 1: Just after Rula was declared president with fifty point nine
• 16:09
  Speaker 1: percent of the books. The next four years are in
• 16:19
  Speaker 1: charge of challenges. Latin America's largest economy will face lower growth,
• 16:26
  Speaker 1: high interest rates, and persistent inflation. Here's Unstravisia held Latin
• 16:33
  Speaker 1: American economists at City Group. It's never good news when
• 16:37
  Speaker 1: the fat heights rates for emerging markets. So Brazila will
• 16:41
  Speaker 1: be facing head winds going into next year with lower
• 16:44
  Speaker 1: commodity prices, tighter financial conditions, and as lower as lower
• 16:49
  Speaker 1: global growth in China, in Europe and in the US.
• 16:54
  Speaker 1: We're forecasting relatively low growth for all of Latin America,
• 16:58
  Speaker 1: but for in particular for breast in three. This is Gabriella,
• 17:06
  Speaker 1: a self declared Bolsonado support I talked to at a
• 17:10
  Speaker 1: coffee shop in Brazilia prior to election j We are
• 17:16
  Speaker 1: so eclusive e Columbia. The economy is one of the
• 17:19
  Speaker 1: things that I think about the most when I cast
• 17:21
  Speaker 1: my vote. I'm an independent worker and I need the
• 17:25
  Speaker 1: economy to perform well. Only now after the pandemic, we
• 17:29
  Speaker 1: are seeing that there's an economic bounce back, and I
• 17:31
  Speaker 1: fear that things will change in the economy, could stall.
• 17:36
  Speaker 1: I'm here would who was working at a clothing store
• 17:41
  Speaker 1: in the Southwest neighborhood of Brazilia. Today prior to elections,
• 17:47
  Speaker 1: are they going you see? Politics are an embarrassment this year. Really,
• 17:51
  Speaker 1: I've never seen anything like this, and this impacts businesses.
• 17:56
  Speaker 1: I'm really worried about unemployment and security. There's a lot
• 18:00
  Speaker 1: of people going hungry and without jobs. No stray. Interest
• 18:05
  Speaker 1: rates in Brazil at at the highest since two thousand seventeen.
• 18:10
  Speaker 1: Central bankers were ahead of the curve and raised interest
• 18:14
  Speaker 1: rates in the wake of the pandemic. Last September, they
• 18:19
  Speaker 1: stopped an eighteen months long tiding cycle, which took rates
• 18:24
  Speaker 1: to thirteen point seventy five. Inflation fell from earlier this
• 18:32
  Speaker 1: year to forecast of five point six percent by December.
• 18:39
  Speaker 1: But it wasn't monetary policy that helped hold price increases.
• 18:44
  Speaker 1: It was tax cuts, temporary tax cuts that lower transportation costs,
• 18:51
  Speaker 1: including gasoline, and most of them are set to expire
• 18:56
  Speaker 1: by the end of the year. He's Roberto Zazamski, brazilianalysts
• 19:01
  Speaker 1: at Vartes. So we have seen a significant decline and
• 19:05
  Speaker 1: headline inflation. In fact, we experienced three months of deflation
• 19:10
  Speaker 1: in Brazil between July and September, but now in October
• 19:13
  Speaker 1: we already started to see monthly prices rising again. So
• 19:18
  Speaker 1: when you look at what we call co inflation that
• 19:21
  Speaker 1: basically focus on the less volatile prices in the economy,
• 19:27
  Speaker 1: that measure continues to be quite high and it will
• 19:31
  Speaker 1: take longer for them to improve. Brazil's economy has proven
• 19:36
  Speaker 1: resilient to high interest rates. Many Brazilians are concerned of
• 19:42
  Speaker 1: what comes next for the economy. Sa Samski Divarkle's analysts
• 19:48
  Speaker 1: expects the nation's economy to grow by just one percent
• 19:52
  Speaker 1: next year, down from two points seven percent, and the
• 19:57
  Speaker 1: big question is how the government will respond to persist
• 20:02
  Speaker 1: in inflation. Here's five Amendous, a doorman in the southwest
• 20:08
  Speaker 1: neighborhood of Rassilia. Economy. May God bless whoever wins, because
• 20:15
  Speaker 1: the economy is really weak. It's not performing as it should.
• 20:19
  Speaker 1: I worry about prices of food, gasoline and cooking gas.
• 20:23
  Speaker 1: We'll see what the next president does and if he
• 20:26
  Speaker 1: manages to lower prices, because if not, we won't even
• 20:29
  Speaker 1: have enough to eat. And then there's all the complained
• 20:33
  Speaker 1: promises that need funding. That's Lula in an event in
• 20:43
  Speaker 1: the city of Jewist you Porda speaking to a crowd
• 20:47
  Speaker 1: of supporters before election day, he's promising to raise minimum
• 20:52
  Speaker 1: wages so they match inflation. During the campaign trail, he
• 20:57
  Speaker 1: also promised to cut taxas for those with the lowest income.
• 21:02
  Speaker 1: He promised object reform that will increase taxes on the
• 21:07
  Speaker 1: regist and he promised paytricks to the poor of six
• 21:11
  Speaker 1: hundred eyes, which is about a hundred and sixteen U
• 21:16
  Speaker 1: S dollars. But the now elected president hasn't said how
• 21:22
  Speaker 1: all of that will be financed. Resist public that has
• 21:28
  Speaker 1: risen through most of the past decade and is now
• 21:30
  Speaker 1: the highest among the major emerging markets, what investors need
• 21:34
  Speaker 1: from the government is some sort of reassurance, that is,
• 21:37
  Speaker 1: that will be paid back at some point. Here's Adriana Upita,
• 21:41
  Speaker 1: Brazil economist at Bloomberg Economics. The big problem for Brazil
• 21:46
  Speaker 1: right now is that none of its fixical rules is credible.
• 21:50
  Speaker 1: Governments from the right and the left political spectrum have
• 21:54
  Speaker 1: circumvented each of these rules. So the first question for
• 21:58
  Speaker 1: the new presidential mandate it's to propose a new, credible,
• 22:02
  Speaker 1: enforceable and feasible fiscal group. The second second question is
• 22:06
  Speaker 1: to make sure that the counter can fund the many
• 22:09
  Speaker 1: promises made on the campaign trail, especially on social aid
• 22:12
  Speaker 1: and incomplex cuts. Latin America has seen a wave of
• 22:18
  Speaker 1: products erupt as governments have failed to deliver the promises
• 22:23
  Speaker 1: of helping easy the pain of high inflation and low growth.
• 22:29
  Speaker 1: So it's not just the market but Brazilians themselves who
• 22:34
  Speaker 1: will be looking at how Lunar navigates the challenge of
• 22:38
  Speaker 1: increasing social aid while keeping Brazil's death levels stable. And
• 22:44
  Speaker 1: they are likely to keep tabs on their new president,
• 22:48
  Speaker 1: who could come under pressure if he doesn't fulfill all
• 22:52
  Speaker 1: those promises he made on the campaign trail. For Bloomber News,
• 22:59
  Speaker 1: this is my yellow so I'm delighted to talk a
• 23:08
  Speaker 1: bit more about the prospects for Brazil with Richard Back,
• 23:12
  Speaker 1: who's head of political analysis and strategy at XP Investimentos
• 23:16
  Speaker 1: in Brazil. Um, but I should say he's joining me
• 23:19
  Speaker 1: from a mountaintop in what is a public holiday in Brazil.
• 23:24
  Speaker 1: So thank you very much for having this having this
• 23:27
  Speaker 1: conversation with me on your on your day off, Richard.
• 23:31
  Speaker 1: It's been a busy week, I know, and we've had
• 23:33
  Speaker 1: quite a lot of uncertainty at various times over whether
• 23:36
  Speaker 1: the current president, John Bersnaro had actually admitted defeat. So
• 23:41
  Speaker 1: I guess could you just give us an update on
• 23:43
  Speaker 1: where things stand. Sure, yeah, good afternoon. It is a
• 23:47
  Speaker 1: pleasure to talk to you today. Um, you know, Lulas
• 23:51
  Speaker 1: is getting some kind of short vacations from today until Sunday,
• 23:56
  Speaker 1: So I'm really happy with this. So I could come
• 23:59
  Speaker 1: to this hunting and take a breath for a couple
• 24:02
  Speaker 1: of days and then we'll be back. He's on he's
• 24:04
  Speaker 1: on the beach. Yes, that's this very nice place I recommend.
• 24:09
  Speaker 1: And but yeah, we we are living these days after
• 24:12
  Speaker 1: the elections that Bosonaro half recognized the result of the election.
• 24:17
  Speaker 1: But we're seeing this role being blocked by boson narvistic
• 24:21
  Speaker 1: truck drivers and militants from his cause. And um, yeah,
• 24:26
  Speaker 1: I think it works in a coordinated way because Bosonaro
• 24:31
  Speaker 1: was delaying to talk to to make a first speech
• 24:34
  Speaker 1: after the elections because he was hoping that people will
• 24:37
  Speaker 1: go to the streets and make protests in favor of
• 24:40
  Speaker 1: him and then he could be politically stronger than he
• 24:44
  Speaker 1: is right now. But the other side of this, this
• 24:47
  Speaker 1: coin is if people doesn't go and they are not
• 24:50
  Speaker 1: going in this multitude that he was hoping. Um, he
• 24:54
  Speaker 1: will be in a weak situation and very isolated by
• 24:57
  Speaker 1: the establishment in Brazil, media, political establishment, judiciary establishments. They
• 25:02
  Speaker 1: are just leaving Boston, Nario. So, um, this I don't
• 25:07
  Speaker 1: think this is will work in a good way for him,
• 25:10
  Speaker 1: But I think it's done. What I'm saying to our
• 25:13
  Speaker 1: clients since uh, the last month, I think think seems
• 25:17
  Speaker 1: since September is I think we are forecasting this. You know,
• 25:22
  Speaker 1: truck drivers, people in the streets, protesting, but we never
• 25:26
  Speaker 1: we never took this as a real threat to democracy
• 25:29
  Speaker 1: in Brazil. So this is the thing that democracy can support.
• 25:34
  Speaker 1: I'm not saying they should support, but can support. And um,
• 25:38
  Speaker 1: it is happening. But I think that the end is
• 25:40
  Speaker 1: one week, two weeks we were free from this thing. Yes,
• 25:43
  Speaker 1: so you can have demonstrations on the street, but that
• 25:45
  Speaker 1: doesn't necessarily mean a real challenge to the rule of
• 25:49
  Speaker 1: law or to the police. Full transfer of power. And
• 25:51
  Speaker 1: just to remind us, when would that transfer of power happen?
• 25:56
  Speaker 1: When would when would president elect I guess Lula become
• 26:00
  Speaker 1: president again? Yeah again the third time. Um, this is
• 26:06
  Speaker 1: these two moments, one moment in December, maybe December tenth.
• 26:10
  Speaker 1: It is a date that supermanatural court defines in December
• 26:15
  Speaker 1: when they give him a kind of certificate that he
• 26:18
  Speaker 1: won the elections. So and then this first moment official
• 26:23
  Speaker 1: and the second moment is generally the one when you
• 26:26
  Speaker 1: have officially the new president it is constitutional, you have
• 26:30
  Speaker 1: officially the new president becoming president, working in the office officially,
• 26:36
  Speaker 1: and the Congress in Brazil one month after that is
• 26:39
  Speaker 1: generally is February the one. What kind of constraints do
• 26:43
  Speaker 1: you see on him? And of course there's a lot
• 26:46
  Speaker 1: of people hoping that he can achieve great things and
• 26:53
  Speaker 1: be focusing on the poorest in society and other things
• 26:57
  Speaker 1: that he's been sort of known for. Is he going
• 26:59
  Speaker 1: to be very constru train and what he can do? Yes,
• 27:03
  Speaker 1: he will. I think he will have the same constraints
• 27:06
  Speaker 1: that also Naro faced in the last four years UH
• 27:09
  Speaker 1: in this this more ideological agenda in terms of behavior
• 27:14
  Speaker 1: especially Butsonar you couldn't approve a lot of things in
• 27:17
  Speaker 1: the right wing side and Lula would not approve a
• 27:20
  Speaker 1: lot of things from the left wing side. Agenda. I
• 27:23
  Speaker 1: think he will have a majority in Congress, UH, like
• 27:26
  Speaker 1: two hundred seventy congressmen in the House, like a forty
• 27:30
  Speaker 1: congressman UH, senators in in Senate. It is very, very
• 27:35
  Speaker 1: very easy to see the numbers in favor of Lula UH.
• 27:39
  Speaker 1: Not a big majority, but majority in both houses. But
• 27:43
  Speaker 1: it doesn't mean he will do anything he wants. He
• 27:46
  Speaker 1: cannot be his own party administration. He knows that he
• 27:48
  Speaker 1: will have to bring more people and will have to
• 27:52
  Speaker 1: deal with the Congress and the judiciary, because this is
• 27:55
  Speaker 1: a mess, the situation that judiciary is in Brazil today.
• 27:59
  Speaker 1: So he's saying this is positive that he knows that
• 28:04
  Speaker 1: he cannot be a radical or revengeful against the institutions
• 28:09
  Speaker 1: because he can be removed from from the presidency as
• 28:13
  Speaker 1: Tuma was in the past. He nominated Arguming, his vice
• 28:17
  Speaker 1: president of very conservative men Um, for the coordination of
• 28:23
  Speaker 1: the process of transition, which is a very good sign
• 28:27
  Speaker 1: because he could nominate someone from his own party. So
• 28:30
  Speaker 1: he is opening this thing a little bit because it
• 28:34
  Speaker 1: doesn't mean much, but he knows and he reads Lula
• 28:38
  Speaker 1: very well. Does kind of signals that he has to
• 28:42
  Speaker 1: give to the society. So he's doing that from a distance.
• 28:45
  Speaker 1: It looks surprising, you know, when Lula was first elected
• 28:48
  Speaker 1: and here's this left wing firebrand, former trade unionist and
• 28:52
  Speaker 1: metal worker. Um I seem to remember, investors and the
• 28:56
  Speaker 1: financial markets were pretty worried. And yet this result, uh
• 29:00
  Speaker 1: of his his winning the presidency seems to have gone
• 29:03
  Speaker 1: down reasonably well. So so briefly, how would you how
• 29:07
  Speaker 1: would you describe the reaction of kind of international investors
• 29:10
  Speaker 1: to this result and what is it that that investors
• 29:15
  Speaker 1: are thinking when they look at Lula. It was interesting
• 29:18
  Speaker 1: because since the last year, um, after the opening, the
• 29:22
  Speaker 1: general opening, and uh, finally we could travel to the
• 29:26
  Speaker 1: US and the UK and make contact with the personally
• 29:30
  Speaker 1: with our clients and investors in Brazil, and they were
• 29:33
  Speaker 1: more more comfortable with Lula winning the elections before the Brazilians.
• 29:38
  Speaker 1: So the foreigners, they were more comfortable with this this thing. Yeah,
• 29:41
  Speaker 1: we know Lula. He will make distortions, but he's not
• 29:44
  Speaker 1: a guy that will blow everything and make a very
• 29:48
  Speaker 1: red government, red administration, left wing orientated. During the campaign,
• 29:54
  Speaker 1: we haven't this this volatility that many people were expecting
• 29:58
  Speaker 1: during the elections, you know in the markets in Brazil,
• 30:01
  Speaker 1: because you know, you know, the investors in Brazil they
• 30:05
  Speaker 1: used to say, we know already know the good part
• 30:09
  Speaker 1: and the best part of both of these guys, Lula
• 30:12
  Speaker 1: and Bosonardo. So we've have seen the wars from Lula
• 30:15
  Speaker 1: and the best from Lula, the wars from Bosonaro, the
• 30:17
  Speaker 1: good part of Bossonaro. So not that surprising situation, right,
• 30:24
  Speaker 1: that's interesting. And finally, I mean for the region and
• 30:29
  Speaker 1: for the sort of broader economy, do you think it's
• 30:32
  Speaker 1: good news to have Lula reelected? And we are in
• 30:35
  Speaker 1: a very difficult situation for the global economy, lots of
• 30:38
  Speaker 1: emerging market economies dealing with a stronger dollar, which traditionally
• 30:44
  Speaker 1: is quite a bad thing, and also rising interest rates
• 30:47
  Speaker 1: by the Federal Reserve. We've been talking earlier in the
• 30:49
  Speaker 1: show about the the US interest rates that's in the
• 30:53
  Speaker 1: past often been a recipe for for crises in places
• 30:58
  Speaker 1: like Brazil. Um. But we also have some possible pluses
• 31:03
  Speaker 1: and advantages coming to South America from the fact that
• 31:06
  Speaker 1: the US is sort of distancing itself and potentially decoupling
• 31:10
  Speaker 1: from from it some of its trade relationships with China.
• 31:13
  Speaker 1: So just a Lula presidency make it more likely that
• 31:17
  Speaker 1: Brazil will come through this in relatively good health and
• 31:20
  Speaker 1: maybe to see some opportunities from the current state of affairs.
• 31:24
  Speaker 1: I think so um, they diagnosis that his party and
• 31:29
  Speaker 1: people and his inner circle is getting more matured, because
• 31:33
  Speaker 1: he was scaring me personally because six months ago when
• 31:36
  Speaker 1: you asked them about the foreign situation, they fed all
• 31:40
  Speaker 1: that stuff. He wasn't in their political or economical calculations,
• 31:44
  Speaker 1: you know, and he was kind of surprised for them.
• 31:47
  Speaker 1: So you at this point, I was looking at a Wow,
• 31:51
  Speaker 1: this is this is weird. You know, they should be
• 31:54
  Speaker 1: aware about that. But they are increasing this understanding that
• 31:59
  Speaker 1: the foreign situation Asian can be not good for Brazio.
• 32:04
  Speaker 1: So but but Lula, he he's already doing better in
• 32:09
  Speaker 1: this foreign relationship, uh than Bosonaro because Bossonaro he's not
• 32:15
  Speaker 1: very fond of this international negotiations and Bluela he loves
• 32:20
  Speaker 1: that thing, you know, he loves to be loved. So
• 32:23
  Speaker 1: he uh and Macron they have a very good relationship.
• 32:28
  Speaker 1: I'm pretty sure that he will meet with Mr Joe
• 32:32
  Speaker 1: Biden before even being the office. In terms of negotiations,
• 32:38
  Speaker 1: I think Lula has advantage in terms of reading the scenario,
• 32:41
  Speaker 1: acting according to the scenario. I think Bossonaro has a
• 32:46
  Speaker 1: better team than Lula can nominate. That's interesting. So right
• 32:49
  Speaker 1: now the sort of economic expertise would would still favor
• 32:53
  Speaker 1: the current the current president. But if what you're standing
• 32:57
  Speaker 1: in the international community means anything at all, President Lula
• 33:01
  Speaker 1: is going to be better off as not least because
• 33:03
  Speaker 1: he's he's going to go off and be the hero
• 33:05
  Speaker 1: at the cop meetings I see in in Egypt. So
• 33:10
  Speaker 1: many concerns globally about what was going to happen to
• 33:13
  Speaker 1: the Brazilian the rainforest if if President Boltonaro stayed in power.
• 33:18
  Speaker 1: Richard Bach, and thank you so much for doing this
• 33:20
  Speaker 1: on your day off. We really appreciate you coming on.
• 33:23
  Speaker 1: Thank you very much. Thank you for the dpication. That's
• 33:35
  Speaker 1: it for Stephonomics. I have no idea what we're going
• 33:37
  Speaker 1: to talk about next week, but check out the Bloomberg
• 33:40
  Speaker 1: News website for more economic news and views on the
• 33:42
  Speaker 1: global economy, and follow at economics on Twitter. This episode
• 33:46
  Speaker 1: was produced by Sammer, Sadi Young Young and Magnus Hendrickson,
• 33:50
  Speaker 1: with special thanks to Eloisa, Maria, Richard Bach, Nancy Cook,
• 33:55
  Speaker 1: and Anna wat. Mike Sasso is the executive producer of
• 33:59
  Speaker 1: Stephonomics four