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Analysis
Battle of ideas for Latin America’s future

Battle of ideas for Latin America’s future

Aécio Neves a credible alternative to Dilma 

by David Smith

Wed 8 Oct 2014

At Rio de Janeiro airport on the evening of Brazil’s presidential election of 5 October, the shock facing the country was palpable.

Yes, President Dilma Rousseff won handily by eight percentage points in the first round. But No, she did not clinch victory and now faces a run-off on 26 October against the one opponent who might beat her – Aécio Neves, scion of a respected political dynasty (his grandfather was elected president but never served, falling ill before his inauguration). More importantly, Neves is a candidate who blends charisma with policy.

‘He’s a man who knows the Bossa Nova as well as the finer details of Brazil’s GDP,’ remarked Alma Carvalho, a manicured, middle-aged businesswoman watching the results come in. ‘Aécio Neves is Dilma’s worst nightmare.’

The impending battle of personalities and ideas will be keenly watched in Washington and the City of London, not to mention across the Americas. The battle focuses on two very different economic agendas that echo across the sub-continent and beyond.

Dilma, as she is known to all Brazilians, came to power as the chosen heir of President Luis Inácio Lula da Silva, the working-class hero who led the Partido dos Trabalhadores (Workers Party) in from the wilderness at the dawn of the milennium. Lula, with his blend of grassroots, street credibility and pragmatic fiscal management, succeeded in convincing many, both at home and abroad, that the workers’ champion could be statesman and savvy economist capable of working with the private sector, investors and Wall Street just as much as the World Bank.

For a while, Dilma basked in Lula’s afterglow, taking his much-vaunted Bolsa Família (family support programme) and making it the biggest welfare plan in the world. It offers help to more than 50m people – a quarter of the country’s population – and puts benefit cash in the hands of mothers, tying it to children’s school attendance, free school meals, even pensions and health care.

Yet increasingly, the effects of such an interventionist agenda have come back to bite. Interest rates soared: Today they stand at 11%, the highest in the G20. In the absence of attempts to curb government spending, inflation took off, currently close to 7%. GDP is now shrinking and growth has entered negative territory in a country that was once close to being Latin America’s Tiger. Investment dropped more than 5% in the last quarter.

And then comes the issue of corruption. Within living memory, Brazil has been the only power in Latin America to oust a president for corruption – Fernando Collor back in 1992. I was present for that overthrow, and truly it was a case of people power, with millions taking to the streets to say: Basta! Enough!

Now Dilma’s government is embroiled in a heavy-duty scandal, involving senior figures from Lula’s time in the ruling party and kickbacks via the state oil giant Petrobras.

To all of this, Aécio Neves presents a credible alternative. ‘I raise today the issues that represent monstrosity for all Brazilians,’ he said after the first round of voting as his centre-right Social Democrats claimed 33% of the vote. ‘High inflation, lack of growth, lack of any fiscal responsibility, and corruption.’ His first move was to announce that a respected former central bank chief, Arminio Fraga, would be his finance minister if he wins.

No wonder the stock market in São Paulo rose nearly 5% the day after, and the real strengthened quite dramatically on the foreign exchanges. Neves, a disciple of the man who came to power after the corruption earthquake of the 1990s, President Fernando Henrique Cardoso, preaches an agenda that is based on cutting central government, on reducing public spending, on curbing inflation at all costs, and letting the real float.

So the battle lines are clearly defined. President Dilma calls it ‘the elite versus the people,’ slamming bankers and investors in the process. Senator Neves, formerly Governor of the mining province Minas Gerais based around Belo Horizonte, fires back: ‘It’s not about me, or a political party, it’s about all Brazilians who have had enough of big, irresponsible government.’

The pollsters tell us that much depends on where the third-party candidate, Marina Silva, throws her weight. Ms Silva, an environmentalist who looked like the main challenger at one point, took more than 20% in the first round. She once had more in common with Dilma – indeed she was a member of the Workers’ Party, but the president attacked her fiercely to drive down her vote, and the wounds seem set to force Silva to the Neves camp. Even then, Neves has an uphill fight to depose a president whose programmes have built formidable support in the favelas, the shantytowns of Rio and São Paulo, and the poor, rural north-east.

What’s certain is that the rest of Latin America is watching very closely. In Argentina, Bolivia and Venezuela, populists have made state intervention the modus operandi in the name of development. In contrast stand Mexico, Colombia, Peru and Chile, where pragmatists seek economic growth and strong investment, again in the cause of development.

Latin America has, for some years now, been a bellwether in the world of emerging markets. And Brazil represents the fulcrum, the engine-room of that paradigm, not just because of the size of its economy but also because of its primacy among the Brics.

Keep an eye on the final outcome of this election, because it is bound to set the scene for so many others who hover between two visions, two ways, two agendas of how to forge a better tomorrow in the developing world.

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