Brazil need not be the country of tomorrow, and can instead lead today. The longstanding curses of mercantilism, corruption, and centralization aren’t set in stone.
Breaking them by liberating the economy must be priority número um for President Jair Bolsonaro.
He has the right plan and the right people for Latin America’s largest and most populous nation. As explained in his January speech at the World Economic Forum, he wants to lower the tax burden and streamline rules—while ensuring economic stability and the rule of law—to make life easier for producers, entrepreneurs, and investors. He identified trade impediments as ripe for change, with an eye on making Brazil a Top-50 nation for business friendliness.
The battle will be in precise implementation and forging alliances in the National Congress to pass wide-ranging reforms that are long overdue.
A Mandate to Privatize
On Jan. 1, Bolsonaro, a retired army captain and seasoned congressman, took office with a clear mandate from voters: combat crime, corruption, and economic stagnation. The country officially exited its worst recession on record in late 2017. However, growth remains weak, and through 2020, it looks set to remain below the average for emerging markets. Unemployment is at 11.6 percent, and annual homicides are 25 per 100,000 inhabitants, among the world’s highest.Bolsonaro has promised to do what the “Chicago Boys” did for Chile: liberalize and downsize the Brazilian state, which is a monument to inefficiency and waste. Paulo Guedes—a University of Chicago-trained economist who taught at the University of Chile in 1980—is spearheading the efforts. Via the new Economy Ministry, he intends to slash the country’s massive public debt, which costs the equivalent of a Marshall Plan each year to service.
Tried-and-true measures on the table—as used to great success by Chile—include tax reduction and simplification, lowering tariffs, and new trade agreements. Brazil has 138 state-owned companies at the federal level alone, many of them with more liabilities than assets.
Guedes wants to dispense with at least 100 of them, and rake in up to $214 billion. The president has already signed a decree promoting a series of concession agreements to hand over 23 airports and seaports to the private sector for 30 years, to the tune of $935 million.
Getting the Details Right
To be successful in these endeavors, Bolsonaro and his team must heed the advice of Álvaro Vargas Llosa, the Peruvian author of “Liberty for Latin America,” and pair privatization with competitive markets. If sold with sweetheart deals, public monopolies will become similarly inefficient private monopolies, as occurred throughout Latin America in the 1990s.On crime, Bolsonaro has pledged to loosen gun laws and has already lifted some restrictions. He plans to give law enforcement leeway to use deadly force and reduce the age at which minors, often recruited by gangs, can be prosecuted. The latter change has the potential to backfire, however, since Brazil’s prisons are notoriously overcrowded and violent. The prison population has tripled since 2000, and more than a third of inmates await trial.
A key ingredient in the violence is turf wars between drug cartels. Thus far, Bolsonaro has been unwilling to consider even timid liberalization, which is already underway in Congress. Many nations are offering imperfect but useful examples to consider, such as Canada and Uruguay, and these could lessen the violence.
To tackle corruption, Bolsonaro has appointed a judge of impeccable credentials to lead the Justice Ministry, Sergio Moro. Heralded as a hero by many Brazilians, he put several of the country’s most powerful politicians and businessmen behind bars for influence peddling and money laundering in the massive Car Wash scandal. They include Lula da Silva, the former socialist-leaning president (2003-2011), who attempted to run for re-election against Bolsonaro.
Even if this had the appearance of being political, since Moro prosecuted Bolsonaro’s campaign rival, Moro has the goods and should be allowed to continue his work. He wrote reform bills that enacted harsher sentences for corruption and limited appeals processes, among other positive changes.
The Pesky Deep State
Unlike in Pinochet’s Chile, Bolsonaro’s reforms have an uphill battle against entrenched unions, opposition parties, and the media. During last year’s elections, his party only secured 52 seats (out of 513) in the lower house and just four in the Senate (out of 81). This means he will have to compromise and water down his proposals to get them passed.When sending the anti-crime and anti-corruption reform bills to Congress on Feb. 19, he was already forced to weaken his strategy to criminalize slush funds, a major contention. The practice is widespread in Brazil, and at least 17 lawmakers stand accused of it. In 2016, a similar bill failed to pass.
Privatizations also need congressional approval on a case-by-case basis. One example, the postponed sale of energy firm Eletrobras until 2020, shows the political class’s great reluctance to let go of state assets.
There is consensus, though, that Brazil needs to get her books in order, which is where Bolsonaro should focus to score major wins for the economy. In 2016, for example, Congress passed a constitutional amendment that essentially froze government spending for the next 20 years, adjusted for inflation.
This torturous maze of compromise to see his mandate to fruition means he inevitably must prioritize, and perhaps restrain his rhetoric—lest he chase away potential allies. While Brazilians put Bolsonaro in the presidency to reject the Workers Party, he shouldn’t confuse this with carte blanche for a crusade on social issues that could undermine economic promise.
Fergus Hodgson is the founder and executive editor of Latin American intelligence publication Antigua Report. He is also the roving editor of Gold Newsletter and a research associate with the Frontier Centre for Public Policy.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
