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Analysis
A tale of two Latin Americas

A tale of two Latin Americas

Conflicting agendas for Brazil's future 

by David Smith

Wed 22 Oct 2014

In the final few days of a truly tight election battle in Brazil, we are witnessing the business of democracy, with a noisy campaign, fierce debate, and policy often trumping personality. Whatever the wild swings of the Bovespa index on the São Paulo bourse, the big picture is that Latin America’s lead player is being presented with competing narratives, contrasting economic agendas, and a genuine choice in terms of political future.

The rest of the subcontinent is watching closely this week, because this vote speaks to two models of leadership, two political philosophies, two Latin Americas. In one, the state intervenes, controls and spends at almost every level, making tens of millions believe they have a stake in the status quo. In the other, the government gives even the central bank autonomy, balances the budget and liberalises everything from trade to the tax code.

Normally in this region the incumbent wins the run-off when it comes to a second round. President Dilma Rousseff may indeed survive Sunday’s vote, because her Workers’ Party boasts a formidable machine for getting out the vote in those areas where the government has subsidised so many and so much, be it the family or housing. She and her predecessor, President Luiz Inácio Lula da Silva, can point to an extraordinary reduction in the number of Brazilians living in poverty, and the 40 million citizens who have joined the middle class in their time.

However, the president has some reason to fear the worst, a fear that has haunted her presidency ever since riots erupted in 2013, the public discontent focusing on what Dilma’s Brazil was spending on World Cup preparations, and not spending on health, education and social services.

In the final stages of this campaign, she has been forced to acknowledge serious corruption at the highest levels of the state oil giant, Petrobras, a company she once led as energy minister, with kickbacks allegedly going to senior figures in her party. In the early days of its restored democracy, in 1992, Brazil ousted a president for corruption. The latest stench confirms what so many Brazilians have come to loathe, a political elite on the take.

In the circumstances, the Social Democrat challenger Aécio Neves has exploited the window of opportunity to create a vision of an alternative future. He points to President Dilma’s huge cabinet, 39 ministries, as evidence of a bloated government looking after its own. He promises to balance the budget, reduce taxes and cut the red tape that stifles investment and growth. The latest International Monetary Fund figures show Brazil to be trapped in stagnation, with economic growth anaemic, inflation high and the weakest of the Brics economies.

Neves now represents the almost 60% who did not vote for the president in the first round. The emotional endorsement of him by the third party candidate, Marina Silva, once a colleague of Dilma’s, now a bitter critic, leaves Neves with late momentum.

Leave aside the politics of the personalities. What’s striking is the policy battle, the conflict of competing agendas for Brazil’s future. At the recent autumn meetings of the World Bank and IMF in Washington, the subtext of debate on the region centred on the choice Brazil makes this week, and the two Latin Americas on offer.

Does the future belong to the big state, interventionist, micromanaging government, as in Brazil, Argentina and Venezuela? Or is tomorrow about leadership dedicated to freeing economies from central planning, regulation and government deficits? Witness Colombia, Peru, and these days even Mexico. World Bank numbers show that the latter group of countries is the one that is growing.

The opinion polls suggest it’s too close to call in Brazil (although a word of warning: the polls misread the first round). Whatever the outcome, the result will be heard, and digested, across the Americas. Beyond the impact on the Bovespa, or on the real, or on Brazil’s investment rating, it is significant that the election in Latin America’s giant has focused on the economy. Almost 30 years after democracy was restored, the cry is no longer for freedom, but for development.

David Smith, a member of the OMFIF Advisory Board, is a writer, professor and advisor to NGOs based in Buenos Aires.

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