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Brazil's Wild Election Holds Key to Region's Economy · Trumponomics

• 0:02
  Speaker 1: It's the most important election in the country's history, and
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  Speaker 1: it will have significant implications for the global economy. Are
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  Speaker 1: we talking about the U s midterm elections in November?
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  Speaker 1: Not yet? Coming up first is Brazil's presidential poll in October,
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  Speaker 1: already a wild affair in which the front runner survived
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  Speaker 1: an assassination attempt, while another leading candidate is in jail
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  Speaker 1: and was just barred from running. On top of that,
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  Speaker 1: each of the five or six main candidates has a
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  Speaker 1: starkly different vision for Brazil's economy, which, after America's, is
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  Speaker 1: the second largest in the Western Hemisphere. Welcome to Benchmark.
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  Speaker 1: I'm Scott Lanman, economics editor with Bloomberg News in Washington,
• 0:53
  Speaker 1: and now I'm Daniel Moss, columnist at Bloomberg Opinion in
• 0:57
  Speaker 1: North November's election in the US is getting plenty of
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  Speaker 1: attention because it all determine whether President Donald Trump can
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  Speaker 1: make an even deeper impact on the nation. But for Brazil,
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  Speaker 1: the change could be even more fundamental, and the race
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  Speaker 1: even has a front runner who's been called you guessed
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  Speaker 1: at the Trump of Brazil. For more on that and
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  Speaker 1: a breakdown of Brazil's election, we're joined by our Bloomberg
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  Speaker 1: News colleague Bruce Douglas. He's an editor in the nation's
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  Speaker 1: capital of Brazilia for economy and government coverage, and he's
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  Speaker 1: lived in the nation for the past five years. Bruce,
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  Speaker 1: thanks for coming on the podcast. Pleasure. First, let's set
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  Speaker 1: the backdrop here. What's the state of Brazil's economy right now?
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  Speaker 1: Because economy is in a pretty terrible state. We're just
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  Speaker 1: emerging sluggishly from the worst recession on record. We've seen
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  Speaker 1: per capita growth over the post five years has shrunk
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  Speaker 1: by one and this year we look set to have
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  Speaker 1: a pretty anemic growth of about one point four percent.
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  Speaker 1: That's the Central Bank's latest estimate, and next year isn't
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  Speaker 1: looking too brilliant either. Two point five per cent is
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  Speaker 1: is about the most to hope for. So we are
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  Speaker 1: recovering slowly, but it is a seriously underwhelming recovery. Despite
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  Speaker 1: a reformist government that entered power after the impeachment of
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  Speaker 1: the left winger delmohus If, it's been beset by corruption
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  Speaker 1: scandals and the constraints of the Brazilian economy have meant
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  Speaker 1: that so far it has underdelivered on its early promise.
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  Speaker 1: So we're not really talking about any kind of big
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  Speaker 1: upswaying either than in the US or globally. Brazil seems
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  Speaker 1: to be missing out on that right now. What about
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  Speaker 1: for the average citizen of Brazil, has life gotten better
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  Speaker 1: or worse over the past five to ten years? Life
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  Speaker 1: has definitely gotten worse over the past five years, or
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  Speaker 1: not only have they seen their real incomes shrink, they've
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  Speaker 1: seen unemployment rise dramatically. It's now about just over twelve
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  Speaker 1: and we've seen the only kind of stability that the
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  Speaker 1: temor administration that's currently empower has monst to implement, has
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  Speaker 1: really been controlling inflation prices now are running below the
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  Speaker 1: target range at around four percent. That's really been the
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  Speaker 1: only kind of saving grace. But for most Brazilians they
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  Speaker 1: will have felt the cuts of the austerity measures introduced
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  Speaker 1: by this government, as well as seeing a continuing unemployment
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  Speaker 1: and a continued slow growth. In the Latin American context, Bruce,
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  Speaker 1: an inflation rate that low ought to be cause for celebration.
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  Speaker 1: What are we all missing here? Well, one of the
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  Speaker 1: reasons that the inflation rate is so low is because
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  Speaker 1: growth is so anemic, So it's not necessarily that the
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  Speaker 1: central bank has think is completely under control. It's just
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  Speaker 1: that growth itself is so underwhelming that there's little pressure
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  Speaker 1: on prices. Brazil is an economy which still very much
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  Speaker 1: depends on consumer spending, and Brazilian consumers aren't really spending
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  Speaker 1: because many of them don't have jobs or have have
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  Speaker 1: faced cutbacks from say, salaries in the in the public sector,
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  Speaker 1: and so really there's there's no huge celebration to be
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  Speaker 1: found in the inflation statistics. It's more a sign of
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  Speaker 1: an economy that's that's pretty slow going. All right, Well,
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  Speaker 1: let's turn to the election. Now, how is this going
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  Speaker 1: to work, Bruce? It's not going to be decided in
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  Speaker 1: one day, right, No, that's right. So there are two
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  Speaker 1: rounds to the election. There's a first round on the
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  Speaker 1: seventh of October, and if no candidate wins over the vote,
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  Speaker 1: there will be a second round on the twenty eighth
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  Speaker 1: of October, and judging by all the opinion polls and
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  Speaker 1: by Brazil's post military dictatorship history, there will be two rounds.
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  Speaker 1: So at the moment we have a few of them,
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  Speaker 1: thirteen candidates in the race. After the seventh of October,
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  Speaker 1: the hobby whittled down to two and it looks like
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  Speaker 1: it's going to be an increasingly polarized race between kind
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  Speaker 1: of two extremes of the left and the right. Why
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  Speaker 1: don't you tell us a little bit about the person
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  Speaker 1: on the rate. The front runner of JayR ball scenario,
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  Speaker 1: the one that Dan mentioned has been compared to Trump. Sure,
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  Speaker 1: so Jr. Borsonario is he's a former paratrooper and he's
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  Speaker 1: been a congressman for seven terms. But he is pitching himself,
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  Speaker 1: like Trump, as the outsider, and his stance is very
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  Speaker 1: much tough on law and order. He's part of the
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  Speaker 1: so called Bullet Caucus in Congress that has long advocated
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  Speaker 1: for looser oversight of police, and one of his key
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  Speaker 1: campaign proposals is to loosen gun control. At the moment,
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  Speaker 1: buying a gun in Brazil is a very complicated, expensive
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  Speaker 1: and bureaucratic process. He wants to arm so called good
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  Speaker 1: citizens in order to tackle Brazil's astronomical rates of violence.
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  Speaker 1: Over half a million Brazilians have been killed violently over
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  Speaker 1: the past decade or so, and his response to that
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  Speaker 1: is to take this very tough line on law and order.
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  Speaker 1: And that's really what's seen him distinguish himself from his
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  Speaker 1: rivals he has a very anti policitanally correct style. Goes
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  Speaker 1: beyond that in some ways he's actually been he's actually
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  Speaker 1: been tried or hate speech and for for for racism.
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  Speaker 1: He hasn't been tried criminally, but he has been a
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  Speaker 1: faced civil fines for that which he is appealing. Um
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  Speaker 1: So he's a very kind of outspoken candidate who, as
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  Speaker 1: you say, replicates in some ways Trump, but arguably and
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  Speaker 1: even closer parallel might be President du Terchi in the Philippines,
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  Speaker 1: who also came to power on this very hardline law
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  Speaker 1: and order stance. Let's talk about his formal life as
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  Speaker 1: a paratrue. You know, Bruce, for a long time I
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  Speaker 1: was urging our team in Brazilia to consider whether the
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  Speaker 1: military might make a comeback in Brazil given how bad
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  Speaker 1: things are. That notion was pooh pooed. What we reconsider well,
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  Speaker 1: I think that the key question is how much the
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  Speaker 1: military wants to play a role in governing the country.
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  Speaker 1: Because although there is an appetite which appears to be
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  Speaker 1: rising for military intervention, and there is in this election
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  Speaker 1: the highest number since the return to democracy of ex
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  Speaker 1: army personnel competing for elected office, there are still a
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  Speaker 1: number of sensible people in the higher ranks of the
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  Speaker 1: military who are aware that perhaps it is not a
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  Speaker 1: sign of a healthy democracy when the military have too
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  Speaker 1: larger role in government. So, while it is definitely a concern,
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  Speaker 1: and it's notable that while Ja Bosonari is a former
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  Speaker 1: army captain, his voice presidential pick is a former general
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  Speaker 1: who has spoken very flatteringly as Bossonaria about the period
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  Speaker 1: of military rule and has even stated things quite boldly
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  Speaker 1: about it's it's failure being a failure to use torture
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  Speaker 1: rather than killing political opponents. So that is a very
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  Speaker 1: alarming rhetoric. They often ratchet it down when under Prussia,
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  Speaker 1: but there are still senior ranks in the military who
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  Speaker 1: don't want anything to do with this kind of return
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  Speaker 1: to the military dictatorship that ran from the mid nineteen
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  Speaker 1: sixties to the mid now. Is that because the economy
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  Speaker 1: is in trouble, they don't want to be CEO of
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  Speaker 1: this company right now? Or is it a philosophical difference,
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  Speaker 1: a generational thing. Perhaps I think it is a generational
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  Speaker 1: thing more than necessarily running the economy. Although book was
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  Speaker 1: recently published about the Worst Job in the World, which
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  Speaker 1: described the travails of Brazil's finance ministers over the years.
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  Speaker 1: It is an extremely hard economy to run, and one
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  Speaker 1: which is obviously subject very much to global markets and
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  Speaker 1: to what the dollar is doing and what commodity prices
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  Speaker 1: are doing. And therefore there is a limit to what
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  Speaker 1: any any kind of brilliant economic manager can do when
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  Speaker 1: Brazil's economy is in the dulgiums. For reasons which aren't
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  Speaker 1: purely domestic. But I also think that this is a
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  Speaker 1: generation of military leaders, many of whom have have come
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  Speaker 1: of age in the era of democracy, and really looking
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  Speaker 1: around the world can see it's really not a sign
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  Speaker 1: of an advanced democracy to alle too heavily on the
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  Speaker 1: armed forces to implement policy. So, Bruce, we've talked about
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  Speaker 1: boss and Ara's military connections. We we've mentioned that he's
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  Speaker 1: right wing. Usually when we think about right when it
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  Speaker 1: might be somebody who favor his free markets. Then again,
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  Speaker 1: the military connection might have different implications for the economy.
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  Speaker 1: Where does this guy come down on how he can
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  Speaker 1: potentially fix Brazil's economy. Yeah, well, this is one of
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  Speaker 1: the key questions of this campaign, and the markets appear
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  Speaker 1: to be warming to him. He appointed to Paul Guards
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  Speaker 1: University of Chicago trained economist as his as his economic advisor,
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  Speaker 1: and he is increasingly sounding the tune of free markets.
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  Speaker 1: He's talked about a willingness to privatize many of Brazil's
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  Speaker 1: state companies. He's talked about the need to get the
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  Speaker 1: fiscal deficit under control in the next couple of years.
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  Speaker 1: He's talked about the need to tackle arguably the biggest
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  Speaker 1: fiscal problem that Brazil has, which is its pension deficit.
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  Speaker 1: But at the same time, we don't know how reliable
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  Speaker 1: these words are because in his long history in Congress,
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  Speaker 1: is Can assistently voted in favor of more status policies,
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  Speaker 1: and going back a few decades, he was even a
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  Speaker 1: cheerleader when Chaves first came to power, So his voting
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  Speaker 1: records suggests someone who would actually be in favor of
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  Speaker 1: of a strong state. His recent conversion to the benefits
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  Speaker 1: of the free market, we don't know how sincere that is,
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  Speaker 1: or how much that is a ploy to win support
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  Speaker 1: and stake out a different position from the left. As
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  Speaker 1: Brazil's political class has imploded over the last couple of years, Bruce,
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  Speaker 1: there's been one adult in the room, and that's Central
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  Speaker 1: Bank governor Elan Goldfan. What has Bolsonaro said about his tenure.
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  Speaker 1: Does he think he's doing a good job? Will he
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  Speaker 1: replace him? So Boslo would like to keep that gold Final,
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  Speaker 1: He's spoken favorably about him in the past, but he's
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  Speaker 1: also cotched that in terms that he would leave that
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  Speaker 1: to Paolo ged Is, his main economic advisor. Bosonara has
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  Speaker 1: repeatedly said that he knows nothing about economics and that
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  Speaker 1: he's basically going to outsource all major economic decisions to
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  Speaker 1: Paolo ged Is. Now. The problem with this is that
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  Speaker 1: clearly there is likely to be some tensions between say,
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  Speaker 1: the Finance Ministry and other ministries, which Bosonario will have
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  Speaker 1: to intervene in as president. And the other issue is
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  Speaker 1: that Paolo Gedges is not necessarily one committed to the
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  Speaker 1: Bosonario project. He's given some rather strange interviews recently in
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  Speaker 1: which he said that if he's not able to implement
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  Speaker 1: his plans for a downsized state, then he'll see no
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  Speaker 1: problem walking out on a future president Bosonaro. So they
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  Speaker 1: certainly don't seem to be as tightly wedded as perhaps
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  Speaker 1: the market might hope. Now, we spent a lot of
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  Speaker 1: time talking about Balconaro, But even though he's the front runner,
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  Speaker 1: he still doesn't seem to be very close to a
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  Speaker 1: majority in the polling, which means that a runoff would
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  Speaker 1: be very likely and it's far from assured that he
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  Speaker 1: would win. Let's talk about somebody who is one of
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  Speaker 1: the other top candidates. The front rudder could have been
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  Speaker 1: the former president Louis and Nascio Lula to Silva, better
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  Speaker 1: known just as Lula, but it's not because he's the
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  Speaker 1: one in chail. Who is his replacement on the ballot?
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  Speaker 1: Tell us a little bit about him. So his replacement
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  Speaker 1: is a man called Fernando Adagi, and he was the
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  Speaker 1: former mayor of sal Paolo, the largest city in South America,
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  Speaker 1: and he is traditionally seen as one of the more
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  Speaker 1: moderate voices within the Workers Party. Um he has masked
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  Speaker 1: his economics and a doctorate in Marxism and the Soviet Union,
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  Speaker 1: but when he led sal Paolo, he was a pretty
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  Speaker 1: physically responsible mayor, although he was kicked out after one term,
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  Speaker 1: mainly because he failed to deliver on his promises to
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  Speaker 1: some of the Workers Parties core voters, the poor living
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  Speaker 1: on the periphery of the city. He has attempted to
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  Speaker 1: steer a course in which he maintains Lula's image as
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  Speaker 1: a champion of the poor, while also speaking softly to
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  Speaker 1: investors and market and trying to assure them that he
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  Speaker 1: won't be a kind of radical socialist. And in some
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  Speaker 1: ways he has he has some history on his side
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  Speaker 1: his side with this, because in two thousand two, when
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  Speaker 1: Lula was elected president, the markets were were thoroughly scared.
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  Speaker 1: The heyl sank, as did the stock market here. But
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  Speaker 1: Lula wrote a letter to the Brazilian people which promised
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  Speaker 1: a degree of fiscal rectitude, and from his inauguration we
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  Speaker 1: saw a huge boom period for the Brazilian economy, mainly
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  Speaker 1: fueled by global rises in commodity prices, but also through
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  Speaker 1: a moderate governing stance in which all ships rose with
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  Speaker 1: the tired. So it wasn't just the poor that saw
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  Speaker 1: their lives improve under President Lula, but also the middle
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  Speaker 1: classes and the wealthy. So a daddy has that to
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  Speaker 1: to fall back on as proof that the Workers Party
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  Speaker 1: is not equivalent to say, the regime in Venezuela. But
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  Speaker 1: he also keeps a number of people up late at night,
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  Speaker 1: chel I say, with talks about his efforts to rebalance
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  Speaker 1: the tax system to make the rich pay more, his
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  Speaker 1: desire to boost state banks so that they offer more
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  Speaker 1: cheap credit arguably one of the reasons that Brazil is
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  Speaker 1: in the mess. It's it's in at the moment. And
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  Speaker 1: he's even talked about the possibility of currency controls to
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  Speaker 1: limit fluctuations in the exchange rates. So these are some
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  Speaker 1: of the things which which worry investors, and we're waiting
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  Speaker 1: to see which adage emerges. It's likely that in the
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  Speaker 1: second round both candidates, both Jaya Bosona and Fernando Adagi,
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  Speaker 1: will pivot towards the center, but at the moment they're
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  Speaker 1: staking out more extreme positions to to shore up that
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  Speaker 1: first round support. So we've talked about how they might
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  Speaker 1: tack to the center, but how investors are so potentially
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  Speaker 1: skittish about a dodgy's agenda. So could markets be making
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  Speaker 1: the same kind of mistake that they did in two
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  Speaker 1: thousand two when there was a lot of fear that
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  Speaker 1: Lula was going to, you know, really turn the economy
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  Speaker 1: more over to the state. Uh is that a legitimate
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  Speaker 1: fear now or is that really not possible in in
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  Speaker 1: today's globalized economy? Where Brazil just has to really open
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  Speaker 1: up in order to regain some wealth. I think that
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  Speaker 1: we were in a very different scenario from two thousand
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  Speaker 1: and two and a much more alarming situation here. There
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  Speaker 1: is a strong possibility that Adage will govern from a
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  Speaker 1: more centrist position, but he will still face pressure from
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  Speaker 1: the left. There are many prominent voices to the left
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  Speaker 1: of him who will be agitating for a more radical agenda,
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  Speaker 1: and the question is whether he can strike the right
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  Speaker 1: balance and who he will be able to work with
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  Speaker 1: in Congress. What's happened in Brazil at the moment is
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  Speaker 1: that their political establishment has lost almost all of its
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  Speaker 1: credibility and the so called centrist block this slightly kind
• 18:18
  Speaker 1: of amorphous grouping of political parties that tend to to
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  Speaker 1: blow with the wind and tend to coalesce around whoever's
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  Speaker 1: empower somewhat regardless of ideology. The question is whether they
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  Speaker 1: will shift to support Adagy and therefore perhaps tilting more
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  Speaker 1: to the center, or whether they will pay a more
• 18:37
  Speaker 1: obstructionist role. There's also the genuine question about whether the
• 18:42
  Speaker 1: election result will be fully accepted. Jaya Borsonaro has for
• 18:47
  Speaker 1: a long time questioned Brazil's system of electronic voting and
• 18:51
  Speaker 1: insists that the Workers Party are gearing up to commit
• 18:54
  Speaker 1: fraud on voting day, and so if there is enough
• 18:59
  Speaker 1: of his support, orders, if there are enough Boson Narrow
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  Speaker 1: supporters who question this, or there is serious dissatisfaction that
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  Speaker 1: rises amongst a members of the armed forces who don't
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  Speaker 1: want to see the Workers Party back in power, there
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  Speaker 1: is the possibility of a very complicated post election scenario.
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  Speaker 1: Hopefully some form of democratic renewal will after two years
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  Speaker 1: of somewhat disdain for Brazil's political class. Hopefully some form
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  Speaker 1: of democratic renewal will reanimate to a certain extent the
• 19:33
  Speaker 1: animal spirits in the Brazilian economy. But it's equally possible
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  Speaker 1: that we may be in for a messy post election
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  Speaker 1: period where the result doesn't truly settle the very deep
• 19:44
  Speaker 1: polarization in Brazilian society at the moment. Sounds like a
• 19:49
  Speaker 1: way to describe the US economy and upcoming election as well.
• 19:54
  Speaker 1: Bruce Douglas, thank you so much for taking the time
• 19:56
  Speaker 1: to talk about Brazil's election with us today. Thank you
• 19:59
  Speaker 1: very jobbing. Benchmark will be back next week. Until then,
• 20:06
  Speaker 1: you can find us on the Bloomberg Terminal, Bloomberg dot
• 20:09
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• 20:13
  Speaker 1: as Apple Podcasts, Spotify or wherever you listen. We'd love
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  Speaker 1: it if you took the time to rate and review
• 20:19
  Speaker 1: the show so more listeners can find us. And you
• 20:22
  Speaker 1: can find us on Twitter. Follow me at Scott Anman,
• 20:26
  Speaker 1: Dan You're at Moss Underscore Echo, and our guest Bruce
• 20:31
  Speaker 1: Douglas is at bruce ecub. Benchmark is produced by topor Foreheads.
• 20:38
  Speaker 1: The head of Bloomberg Podcasts is Francesco Levy. Thanks for listening,
• 20:42
  Speaker 1: See you next time.