The Economist (2022-02-26) Riva

34 The Americas TheEconomistFebruary26th 2022

The country is business friendly. It

boasts 12 free-trade zones where many tax-

es are suspended. Partly as a result, the

startup scene is booming. Last year dLocal,

a digital-payments system and the coun-

try’s first unicorn (a private firm worth

$1bn or more) saw its value rise to nearly

$10bn when it listed in New York. Argen-

tine entrepreneurs, fed up with populist

politics, have flocked to Uruguay. They in-

clude Marcos Galperin, the co-founder of

MercadoLibre, an e-commerce firm which

briefly became the highest-valued compa-

ny in Latin America during the pandemic.

Mr Lacalle Pou is seeking free-trade agree-

ments with China and Turkey.

What makes all of these successes pos-

sible is remarkably stable politics. Populist

rule throughout the region often leads to

drastic policy swings when governments

change hands. In contrast, Mr Lacalle Pou’s

centre-right coalition, which came to pow-

er in 2020, has not rolled back policies

which were introduced by the previous

centre-left government, such as boosting

spending on education and health. It does

want to cut public expenditure by $1bn, but

plans to do so by reducing inefficiencies

and squeezing the government payroll.

Stable politics are accompanied by an

enduring faith in democracy. Three-quar-

ters of Uruguayans tell pollsters that their

votes are always counted fairly, compared

with 18% of respondents in Colombia. Uru-

guay is the only country in the region

where a majority do not believe that rich

people buy political influence.

All is not rosy, of course. Powerful trade

unions can be a hindrance to reform.

Roughly 30% of workers are union mem-

bers, compared with a regional average of

16% (and just 10% in the United States). Al-

most all workers, in both the public and

private sectors, are covered by collective-

bargaining deals. Teachers, in particular,

resist change. Most of the increase in the

education budget over the past two de-

cades went on wages. Promotions tend to

be based on seniority. “Some of my teach-

ers are just there because they’re old, and

they are the worst teachers ever,” groans

Camilla, a 13-year-old. According to caf, a

Latin American development bank, in 2018

a higher proportion of pupils dropped out

of secondary school than anywhere else in

the Americas except Guatemala and Hon-

duras. Around 40% complete high school.

Inefficient state monopolies, mean-

while, raise costs for businesses. The tele-

coms union is fighting to repeal a law that

allows customers to keep their mobile

phone number if they switch providers, as

that would spur competition. Such restric-

tions hinder foreign investment, which is

lower as a proportion of gdpthan in Brazil,

Chile or Colombia.

Mr Lacalle Pou’s popularity, boosted by

his response to the pandemic, could soon

bedented.OnMarch27ththegovernment

willholdareferendumonapackageof

lawsitrammedthroughCongressunderan

“urgentconsideration”lawin2020.The

476 measurescovereverythingfromfight-

ingcrime tosanitisingslaughterhouses.

Thegovernment,whichwasnewatthe

time,hadbeenkeentopressaheadwithits

legislativeagendaasquicklyaspossible,

evenbyunorthodoxmethods.Unionsand

theoppositionpushedforthereferendum.

Theysaythemeansandhastebywhichthe

packagewasadopteddamagedemocracy,

andwanttorepeal 135 ofthelaws.

Pollssuggestacloselydividedelector-

ate. But trust in institutions remains.

Thereislittlehintofpopulismaboutthe

opposition’scomplaints.Thefusshasnot

yetledtoanylargestreetprotests,com-

monintherestofLatinAmerica.“Itwould

behardtohaveaDonaldTrumphere,”says

AdolfoGarcé,apoliticalscientist.

Brazil

Thepriceof

highprices

B

raziliansarenostrangerstoinfla-

tion.Inthemid-1980speoplecrowded

aroundsupermarketgatesand,assoonas

theyopened,racedintobuyasmuchas

theycouldcarry.Withinflationrunningon

averageat300%thatdecade,itpaidtobe

early.Ifanunluckycustomermissedthe

morningrush,theywouldenduppaying

higherpricesintheafternoon.

Today’sBraziliansarenotyetracing

downsupermarketaisles,norevenstock-

piling asmuchastheirinflation-beset

neighboursinArgentina.Butpoorand,

increasingly,middle-classBraziliansare

feelingthepinch.At10.6%theinflation

rateisamongthehighestinbigecono-

mies,andthemedianincome,adjustedfor

inflation,isatitslowestineightyears.

Pricesofpetrolandethanol,commonly

usedinBraziliancars,soaredby47%and

62%respectivelyin2021.Alreadyinflation

isoneofthemostimportantissuesshap-

ingapresidentialelectiondueinOctober.

Fully73%ofpeoplesurveyedinonepollin

JanuarysaidJairBolsonaro,thepresident,

hasdoneabadjobofcontrollingit.

TocushiontheblowMrBolsonarohas

promisedsalaryincreasesandistryingto

lowerfueltaxes.Hehasbeefedupawelfare

paymentintroducedbyLuizInácioLulada

Silva,presidentfrom 2003 to 2010 and

probablyMrBolsonaro’smainopponentin

theelection.Todoso,hepersuadedCon-

gresstoapproveaconstitutionalamend-

mentbustingthrougha caponpublic

spending,mandatedin lawsince2016.

Thathasunnervedinvestorsbysuggesting

fiscal prodigality. Reckless government

spending,afterall,hasoftencontributed

toburstsofhighinflationinthepast.

Thegovernmentisnotsolelytoblame

forrisingprices,however.Inflationison

theincreasearoundtheworld,drivenin

largepartbysupplyshortagesandspiral-

lingoilprices.InBrazilithasbeenexacer-

batedbytheworstdroughtin 90 years.A

consumerboomfuelledbygenerousfiscal

stimulusmayhavepushedupprices,but

thisisalsotrueintheUnitedStates,where

consumer-price inflation isrunning at

7.5%.Whatismore,wereitnotforMrBol-

sonaro’semergencypaymentsduringthe

pandemic,twiceasmanyBrazilianswould

havefoundthemselvesinextremepover-

ty—definedaslivingonlessthan$1.90a

day—in2020.

Thecentralbank hasbeenraisingrates

muchfasterthanmostofitscounterparts

elsewhere.Itsmaininterestratehasrisen

byeightpercentagepoints,from2.75%in

March 2021 to10.75%inFebruarythisyear.

Thatisthehighestlevelinnearlyfive

years.Theharshmedicineshowsnosign

ofending.Consumerpricesaredecelerat-

ing ataslowerratethanexpected(see

chart),andthebankhasindicatedthatfur-

therincreasesmaybeneeded.

Butdeeperproblemsappeartobeun-

derminingthebank’sefforts.“Idon’tthink

it’sagiventhatinflationwillbebrought

backundercontrol,”saysArminioFraga,

oneofitsformerbosses.Onereasonisex-

pectations.InthelastbudgetMrBolsonaro

wangledanextra$310mtoincreasethesal-

ariesofgovernmentworkerswhosewages

hadbeenfrozenduringthepandemic.Al-

thoughatinyamount,itsetsaprecedent.

OnFebruary21stpoliceinthestateofMi-

nasGeraisannouncedthattheywouldbe

goingonstriketodemandhigherpay.

Pensions,theminimumwageandoth-

erkindsofsocialspendingareindexedto

inflation.Suchautomaticadjustmentswill

keepinflation hovering around 6% in

SÃOPAULO

Inflationat10%iserodingincomes

andthepresident’spopularity

The cue for queues

Brazil, consumer prices, % increase on a year earlier

Source: IBGE

12

9

6

3

0

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