Brazil finally seems to be poised for a great takeoff which could surpass Mexico’s successful modernization bid of the 1990s.
After falling for eight consecutive quarters, growth has finally resumed. Agriculture jumped started this trend which has taken over the rest of the economy. Growth is expected to strengthen further, although confidence will remain sensitive to political developments.
Such developments pivot around whether Luiz Lula Da Silva will or will not be disqualified to run for the presidency and if not whether he wins.
Inflation has fallen to below the central bank’s target, raising real incomes and allowing lower interest rates, which will support a recovery of investment.
But above all, Brazil leads Latin America in building an independent judiciary. This is bound to propel development not just growth.
Indeed, according to the Economist Intelligence Unit, the strong correlation between rule of law and growth propels societies to development.
This neglected ingredient of progress is necessary to economic success. To be sure, investments in infrastructure and value creation would never materialize in a chaotic environment where rules are constantly changed or overlooked to favor powerful people or concerns.
Consumers, on their part, neglect saving to favor consumption while the risk factor increases interests on loans and other forms of debt.
These drawbacks disappear when institutions are strong enough to enforce law and regulations and to treat all equally. Certainty begins to reign, and with it, people invest, save and create. This, in essence, is the development chain.
Brazil has placed the first foundation for rule of law to reign. Now it is essential to continue institutional building by means of reshaping party politics and regulations overseeing political parties.
Fear of the resumption of authoritarianism led constitutional drafters to create a very soft regulatory framework to control political parties. As a consequence, it is easier to create a party in Brazil than to register a Cumparsa in the Rio Carnival.
Fragmentation in party politics makes governance difficult to attain and this has been on the rise. Ten years ago, there were 4 political parties representing each about 5% of the electorate. Today there are eight.
This besides promoting corruption, as small parties tend to sell their votes to finance their operations, forces governments to create coalitions to be able to pass laws in congress.
Coalitions usually demand administrative positions in the Executive. As the top bureaucracy is filled with coalition demands, budget control and policy execution turn very complex. This without considering the fact that coalition representatives lack allegiance to the government party and its program and thus take over bureaucratic territory to obtain resources for personal enrichment or party finances. In short political reform is the next battle in the development war that Brazil needs to fight.
With Lula most probably in jail, the democracy founding generation quietly retired, and the economy flying high again, probabilities are high that Brazil will engage in political reform successfully and then it will most probably become as successful as Mexico was after signing NAFTA. But in the case of Brazil the fuel will last longer because it will come from within.
Published by LAHT.com on Sunday January 28th, 2018