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Rodrigo Constantino

Um blog de um liberal sem medo de polêmica ou da patrulha da esquerda “politicamente correta”.


Brazil: what now? – Speech at the Liberty Forum 2016 in Miami, organized by Atlas Network

Segue meu breve discurso de 10 minutos sobre a situação político-econômica do Brasil no Liberty Forum 2016, organizado pela Atlas Network:


  • I’m going to focus in Brazilian’s situation, which we know is better at least than Venezuela’s (what a relief!). It’s fair to say that I’m a cautious optimist, and I’ll try to explain the reasons why.
  • To understand where we’re going, first we need to understand where we came from. Better yet: we need to look to where we fell, to the slippery road we took that led us here.
  • There are mainly 4 pillars – 2 external and 2 domestic – that sustained our boom phase: China’s growth, low cost of money in the developed markets, the macroeconomic reforms of Fernando Henrique and the demographic “bonus”. Let’s go briefly into each of those.
  • 1. China was able to enter in its late industrial revolution after Deng Xioping’s pragmatic reforms, that allowed some capitalism in the country (cat color). Its amazing growth since then pushed commodities’ price through the roof, and Brazil, by luck, has plenty of those natural resources.
  • 2. After the technology crisis in 2000, the Central Banks flooded the markets with liquidity, bringing interest rates down close to zero. Paul Krugman wrote in 2002 asking for a housing bubble to protect the economy from a recession. Beware what you wish for. It happened, and the bubble burst in 2008. What did the Central Banks do? For someone with only a hammer everything looks like a nail. We had new QEs that led to a “monetary tsunami”. Desperate for some yield, investors bought Brazilian assets with their eyes closed, ignoring our fundamentals.
  • 3. FHC did some important reforms, such as the Fiscal Responsibility Law, the autonomous central bank with an inflation target and the free floating exchange rate. Lula kept those important things during his first term, but then he thorn them apart.
  • 4. Finally, the demographic bonus means only that Brazil is still a young country, and the best rate of working people compare to retired people was around 2010. It helped our labor market, decreased pressure on inflation and allowed our Social Security not to implode for awhile.

What Happened Then?

  • That was the best window of opportunity Brazil had in a century! But what did it do with that?
  • Our Labor Party did lots of mistakes. Some of them, to mention just a few: it abandoned the macro reforms; it decided to stimulate aggregate demand in search for votes; it intervened in every market detail; it tried to control prices; it transformed the state owned companies in political entities with populist goals; it stole a lot of money; it adopted a protectionist policy, closing even more our economy; it faked fiscal accounts, losing our credibility; it used the state owned banks to land irresponsibly; in a word, it was almost a socialist government.
  • It was a Grasshoper that won the lottery and thought the summer would last forever, as in the Fable.
  • But when the international scenario changed and the cost of mistakes became too big to be ignored, the corruption scandals gave people ammunition against the state. The revolt was inevitable, and the liberal and libertarian movements that have been criticizing the left were able to gain momentum.
  • Millions took the streets, complaining not only about the depression, which worked as fuel to hate, but about corruption and the size of government.
  • There was a climate ready for the impeachment, and the Lava Jato – our federal police investigation – was very popular. People were tired of all the lies, the terrible results and the astonishing corruption of the left government. They were sick and ready to fight back.
  • At the same time, there has been an explosion of liberty-oriented independent media channels, activist groups, and think tanks in Brazil. They mobilized people with a strong narrative.
  • So we had the impeachment, which was a very important achievement. Lula has been accused of crimes and could end up in prison. Michel Temer has a more pragmatic view and knows that we need liberal reforms, and his good economic team is trying to go in this direction. Will they be able to achieve it? Nobody knows, and definitely it won’t be easy. There are a lot of organized and powerful groups against it, but never before there was such an opportunity for freedom-fighters.

What now?

  • So that’s what really is going on in Brazil right now: a government claiming to serve “the masses” was massively corrupt. It tried to get hold of the whole state, an effort that was succeeding as long as the economy flourished. When the downturn came, the government lost the support of ordinary Brazilians, and important members of the Rousseff administration have been accused of corruption. It lost, the people won. An important battle, not the war.
  • I don’t believe in miracles or in magic solutions, so I think we are far away from a free country. Unfortunately we don’t have a silver bullet. It’s going to take a while, and it’s going to be a tough road ahead. Brazil’s culture is still very socialist, and there is a paradox there: people hate politicians, but they love the State, as an abstraction. For every problem we have, people look at the State as the solution. It has been like that forever…
  • But we don’t have reason to despair. Winds are changing. Actually, I’d say we have reason to be optimists, after all. We can see students talking about more Mises and less Marx, which is incredible, considering the ideological indoctrination in our schools. The social media represents a great and new weapon for classic liberals. But not so fast… First we need to survive that terrible crisis.
  • The situation we have now, in roughly numbers: 12 million people unemployed, a 10% fiscal deficit to GDP, 10% inflation and 70% public debt to GDP.
  • Here are some needed reforms for yesterday: Create a cap in public expenses so that it doesn’t grow above inflation as in the past; approve a more flexible working legislation (the problem are the unions, of course); and increase retirement age. Meanwhile, we need to start the privatization of infrastructure as soon as possible. Will all that be done until 2018?
  • The hope of the most optimistic among us is that Temer will be able to get at least part of the needed reforms approved and put our economy’s train back on the track. It’s not going to be easy, and it’s not priced in the market yet. But if the new President were to truly begin this process, we could reach 2018 with a newly elected President able to move the country even further from the Left’s disastrous socialist policies.
  • And if that happens, Brazil could be not just different from Venezuela, which it already is; it could be almost like Chile, but with 200 million people. Now just imagine that…

Rodrigo Constantino


Sobre / 

Rodrigo Constantino

Economista pela PUC com MBA de Finanças pelo IBMEC, trabalhou por vários anos no mercado financeiro. É autor de vários livros, entre eles o best-seller “Esquerda Caviar” e a coletânea “Contra a maré vermelha”. Contribuiu para veículos como, jornal O Globo e Gazeta do Povo. Preside o Conselho Deliberativo do Instituto Liberal.

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