The Economist - USA (2022-02-26)

34 The Americas TheEconomistFebruary26th 2022

The  country  is  business  friendly.  It

boasts 12 free­trade zones where many tax­

es  are  suspended.  Partly  as  a  result,  the

startup scene is booming. Last year dLocal,

a  digital­payments  system  and  the  coun­

try’s  first  unicorn  (a  private  firm  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 flocked to Uruguay. They in­

clude  Marcos  Galperin,  the  co­founder  of

MercadoLibre, an e­commerce firm which

briefly became the highest­valued compa­

ny in Latin America during the pandemic.

Mr Lacalle Pou is seeking free­trade 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

centre­right coalition, which came to pow­

er  in  2020,  has  not  rolled  back  policies

which  were  introduced  by  the  previous

centre­left  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  inefficiencies

and squeezing the government payroll. 

Stable  politics  are  accompanied  by  an

enduring  faith  in  democracy.  Three­quar­

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 influence. 

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 13­year­old. 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.

Inefficient  state  monopolies,  mean­

while, raise costs for businesses. The tele­

coms union is fighting 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

lawsit rammedthroughCongressunderan

“urgentconsideration”lawin2020.The

476 measurescovereverythingfromfight­

ingcrime tosanitisingslaughterhouses.

The government, whichwasnew atthe

time,hadbeenkeentopressaheadwithits

legislativeagendaasquicklyaspossible,

evenbyunorthodoxmethods.Unionsand

theoppositionpushedforthereferendum.

Theysaythemeansandhastebywhichthe

packagewasadopteddamagedemocracy,

andwanttorepeal 135 ofthelaws.

Pollssuggesta closelydividedelector­

ate. But trust in institutions remains.

Thereislittlehintofpopulismaboutthe

opposition’scomplaints.Thefusshasnot

yetledtoanylargestreetprotests,com­

monintherestofLatinAmerica.“Itwould

behardtohavea DonaldTrumphere,”says

AdolfoGarcé,a politicalscientist.n

Brazil

Theprice of

highprices

B

raziliansare nostrangersto infla­

tion.Inthemid­1980speoplecrowded

aroundsupermarketgatesand,assoonas

theyopened,racedintobuyasmuchas

theycouldcarry.Withinflationrunningon

averageat300%thatdecade,itpaidtobe

early.Ifanunluckycustomermissedthe

morningrush,theywouldenduppaying

higherpricesintheafternoon.

Today’s Brazilians are notyet racing

downsupermarketaisles,norevenstock­

piling as much as their inflation­beset

neighbours in Argentina.But poor and,

increasingly, middle­class Brazilians are

feelingthepinch.At10.6%theinflation

rateisamongthehighestinbigecono­

mies,andthemedianincome,adjustedfor

inflation,isatitslowestineight years.

Pricesofpetrol andethanol,commonly

usedinBraziliancars,soaredby47%and

62%respectivelyin2021.Alreadyinflation

isoneofthemostimportantissuesshap­

inga presidentialelectiondueinOctober.

Fully73%ofpeoplesurveyedinonepollin

JanuarysaidJairBolsonaro,thepresident,

hasdonea badjobofcontrollingit.

TocushiontheblowMrBolsonarohas

promisedsalaryincreasesandistryingto

lowerfueltaxes.Hehasbeefedupa welfare

paymentintroducedbyLuizInácioLulada

Silva, president from 2003 to 2010 and

probablyMrBolsonaro’smainopponentin

theelection.Todoso,hepersuadedCon­

gresstoapprovea constitutionalamend­

ment busting through a cap on public

spending, mandated in law since 2016.

Thathasunnervedinvestorsbysuggesting

fiscal prodigality. Reckless government

spending,afterall,hasoftencontributed

toburstsofhighinflationinthepast.

Thegovernmentisnotsolelytoblame

forrisingprices,however.Inflationison

theincreasearoundtheworld,drivenin

largepartbysupplyshortagesandspiral­

lingoilprices.InBrazilithasbeenexacer­

batedbytheworstdroughtin 90 years.A

consumerboomfuelledbygenerousfiscal

stimulusmayhavepushedupprices,but

thisisalsotrueintheUnitedStates,where

consumer­price inflation is running at

7.5%.Whatismore,wereitnotforMrBol­

sonaro’semergencypaymentsduringthe

pandemic,twiceasmanyBrazilianswould

havefoundthemselvesinextremepover­

ty—definedaslivingonlessthan$1.90a

day—in2020.

Thecentralbank hasbeenraisingrates

muchfasterthanmostofitscounterparts

elsewhere.Itsmaininterestratehasrisen

byeightpercentagepoints,from2.75%in

March 2021 to10.75%inFebruarythisyear.

That is the highestlevel in nearly five

years.Theharshmedicineshowsnosign

ofending.Consumerpricesaredecelerat­

ing ata slower rate than expected (see

chart),andthebankhasindicatedthatfur­

therincreasesmaybeneeded.

Butdeeperproblemsappeartobeun­

derminingthebank’sefforts.“Idon’tthink

it’sa giventhatinflationwillbebrought

backundercontrol,”saysArminioFraga,

oneofitsformerbosses.Onereasonisex­

pectations.InthelastbudgetMrBolsonaro

wangledanextra$310mtoincreasethesal­

ariesofgovernmentworkerswhosewages

hadbeenfrozenduringthepandemic.Al­

thougha tinyamount,itsetsa precedent.

OnFebruary21stpoliceinthestateofMi­

nasGeraisannouncedthattheywouldbe

goingonstriketodemandhigherpay.

Pensions,theminimumwageandoth­

erkindsofsocialspendingareindexedto

inflation.Suchautomaticadjustmentswill

keep inflation hovering around 6% in

S ÃOPAULO

Inflationat10%iserodingincomes

andthepresident’spopularity

The cue for queues

Brazil, consumer prices, % increase on a year earlier

Source: IBGE

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6

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