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After Luiz Inácio “Lula” da Silva won the presidential elections in the neighboring country, many local analysts wonder what the future will be with regard to international politics for the now president-elect. So much so that the opening day of the Expo Paraguay Brasil dedicated an important space to this issue.

From the Paraguay-Brazil Chamber of Commerce (CCPB), organizer of the event, they developed a discussion to analyze post-election Brazil and the bilateral relationship in the economic and political scenario, where they had Ricardo Sennes, managing partner of Prospectiva, as a guest.

The latter is trained in economics and has a doctorate in political science, as well as a specialist in political and economic scenarios. According to Sennes, President Lula will have a precarious, fragile Congress, so the possibility of moving some of the issues that he would like to include in his presidential agenda is quite limited, even with the reforms.

In this sense, Alberto Acosta Garbarino, president of the Civil Association for Development in Democracy (Dende), who accompanied Sennes, stated that in the institutional design of Brazil, obviously the Congress has a very great weight and recalled that there was a plebiscite in 1993 in which the people of Brazil had to choose between presidentialism and parliamentarism.

“A presidential system was left but contained, where the Constitution is almost parliamentary,” he said.

He explained that, in this way, Brazil is almost a parliamentary country, while in Paraguay we give a lot of importance to the president. “We are always thinking that he is the one who commands more, as they say, and Brazil really has a very complicated Congress,” he stressed.

Fiscal and tax reforms on Lula’s agenda

Acosta Garbarino also pointed out that Brazil has been experiencing economic stagnation for ten years, high inflation and a significant fiscal deficit, for which it requires important structural reforms.

Along these lines, Sennes believes that the tax reform in particular is one of the most advanced because the proposal has already been in Brazilian politics for a couple of years. “It is the reform of indirect taxes, the taxes that go on goods and services,” he assured.

He also agreed that the Brazilian economy is growing little and inflation is serious and important, added to which are high interest rates and the rather complicated international economic context.

“It is not an easy political situation, within that context these reforms must be introduced and I don’t know if it can be done in the short term. I think it will be postponed for the second part of the Government”, he anticipated.

The other reform is the fiscal one, with some adjustments in particular, removing the investments from the current fiscal rules. “I think this will be a priority before an administrative reform, which I don’t see is on the agenda, although it is also important,” argued Sennes.

According to the economics specialist, to analyze the Lula government, it must be divided into two parts: the first two years and the last two.

For Sennes, the first part will focus on the president ordering Congress in his favor, he will try to have a president in the Legislature closest to him. “The first two years I think there will be more adjustments, there will be more efforts against the Supreme Court, against the newspapers, against everyone,” he said.

He stated that it will take two years to return to normality, but there will be no significant changes such as those already mentioned. “For example, if Brazil makes a change in environmental policy, investments can be immediately affected. It’s not little, it’s a lot,” Sennes warned.

He commented that it will be a process of political recovery, since the scenario in his opinion was quite weakened by the style of the outgoing president, Jair Bolsonaro. “If during the first two years Lula manages to establish some economic momentum, he once again has the capacity for public investment, then we can see the third and fourth years of Lula’s government a little more focused on more aggressive policies,” he said.

Foreign policy

Due to the internal problems that Brazil has, and to the internal political system, the neighboring country has many difficulties to lead in South America, according to the president of Dende.

He explained that, to lead, one must be willing to face internal political costs. “I imagine today that the United States supporting Ukraine has internal political costs for the American government,” she exemplified.

In this sense, Alberto Acosta pointed out that if Lula wants to lead the region, he has to help the poorest and assume the internal political cost. “With the Brazilian political system where the Congress has a lot of weight, it is very difficult for Brazil to lead, the most it can do is act as referee,” he said.

However, Sennes maintained that although a leadership from Brazil is very difficult from the most effective point of view, a more robust leadership is possible, “but I don’t know if only as an arbitrator because Brazil also has a coordination role, not only arbitration,” he said.

“I would like the coordination to be more economic and infrastructure, than political, but there I think there is a space for Lula to advance,” he pointed out.

Renegotiation of the Itaipu Treaty

Garbarino announced that in 2023 the renegotiation of Annex C is stipulated, which will be reviewed. “Here many expectations have been raised politically with the issue, some totally disproportionate. But this negotiation is going to be very complex. Let us remember that the simple Lula-Lugo agreement, which was signed in 2009, was only approved in Congress in 2011. I imagine that this will take a long time to negotiate and I don’t know how much more in the Congress,” he said.

For his part, Sennes commented that “this is an issue that I do not conceive of thinking about in a very positive scenario for Paraguay, really for some reasons, one of them is that in Brazil we do not have Paraguay as a strategic partner. Within the government, the same about Lula’s leadership”, he affirmed.

He mentioned that Itaipu in Brazil is an energy issue, not a foreign policy issue, it is part of the energy matrix; So, this situation is going to make the review of Annex C very difficult. “Basically Lula has a somewhat different look than Bolsonaro, but it is not that Lula has all the political support to do what he wants, he has to be very selective,” he argued.

Mercosur

Finally, regarding the Common Market of the South (Mercosur), Garbarino said that it was seen as the future, because in its creation the large blocs presented good prospects. But that was changing after the government of Lula and the Kirchners in Argentina, and the economic part of Mercosur was left aside.

“This is what Paraguay is very interested in. We have a small economy that can be expanded through the market with Mercosur, where we could access large investments”, she analyzed. He said that agreements could have been made with the European Union and the United States, but Mercosur was distorted, becoming more of a political bloc than an economic one.

He described the incorporation of Venezuela as the most “pathetic”, because that country, at that time, was far from being a market economy and could hardly join a free market agreement if that was Mercosur. “Even there was the suspension of Paraguay, it was clearly a political Mercosur,” he said.

Sennes agreed that the evolution of Mercosur has unfortunately moved towards managed trade, rather than a free trade space. “An important part of regional trade is under managed trade. Paraguay’s interests are aligned with the interests of important economic groups in Brazil. That gives to think about a form of alignment”, he mentioned.

Post-election Brazil and the challenge of a bilateral relationship focused on mutual economic benefit – MarketData