Why Argentina is not Brazil

Argentina is immersed in a regime of three digits of annual inflation (high and unstable) where the horizon of consumption, financial and production decisions has been reduced from month to week.

This is demonstrated by the recent parity discussion of the truckers’ union, the Moyano family, the most powerful due to its ability to block productive activity. The union pressed in the paritarias for a 137% increase in wages; To mitigate the impact, the recently approved budget in the Deputies was cannibalized, by granting a privileged exemption from Income Tax on land transport.

Brazil managed to reduce the price level for three consecutive months and is growing at a year-on-year rate of almost 4% in the midst of a harsh and exhausting electoral campaign

Meanwhile, the central banks and economy ministries of the rest of Latin America apply prudent monetary and fiscal policies, which, not without conflicts, limit annual inflation, in a range from 7% in Chile to 10% in Brazil last year. Brazil has managed in the short term not only to reduce inflation, but also to have “deflation”. From the peak of 1.62% in March this year, it reduced inflation levels in the last quarter to -0.68% in July, -0.36% in August and -0.29% in September. Meanwhile, economic activity continues to boom, despite the prudential policies of the Central Bank, with real interest rates of more than 10 percent.

Brazil is growing at an interannual rate of almost 4% and growing, demonstrated by positive monthly variations of the order of 1.17%, in the midst of a harsh and exhausting electoral campaign. Meanwhile, Argentina faces inflation in October that borders 8% (annualized, 151.8%) according to the weekly survey by the LCG consultancy. Regarding economic activity, recent monthly indicators are around zero or negative according to the Monthly Estimator of Economic Activity (EMAE) of the Indec or the Seasonally Adjusted Manufacturing Production Index of FIEL for September, whose -2.8% would indicate an early recession.

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Brazil has been very clear about its strategic development horizon for more than 70 years, Argentina has not, at least since the crisis of the import substitution model in 1975. The country’s business, union and political leaders are not clear about where to orient themselves; A large part of it is focused on securing prebendary benefits through lobbying, especially effective in our country where the elite does not escape overwhelming short-termism.

FILE PHOTO: Brazil's former President Luiz Inacio Lula da Silva and Brazil's President Jair Bolsonaro participate in a candidates' debate ahead of a runoff election, in Sao Paulo, Brazil, October 16, 2022. REUTERS/Mariana Greif/File Photo
FILE PHOTO: Brazil’s former President Luiz Inacio Lula da Silva and Brazil’s President Jair Bolsonaro participate in a candidates’ debate ahead of a runoff election, in Sao Paulo, Brazil, October 16, 2022. REUTERS/Mariana Greif/File Photo

There are institutional issues, political trajectories, decisions taken in certain historical circumstances, popular demands and, above all, meritocratic bureaucracy in public and economic policy institutions independent of political power that distinguish Brazil from Argentina, although not without conflicts and pressures from power.

Getulio Vargas, corporatist dictator of Brazil, sympathizer of fascism, a contemporary of General Perón, strategically reversed the alignment of his country from the Axis to the Allies very shortly after the start of World War II, sending troops to Europe and receiving credit and aid from the United States to promote in part the metallurgical and steel industry. Meanwhile, our country continued to exercise a formal “neutrality”, but in fact pro-German, demonstrated for example by the prohibition of popular marches to celebrate the fall of Nazism at the end of the war.

Lula resisted the Brazilian dictatorship not only by putting his body into union struggles and going to prison but also denouncing statistical manipulation

Lula da Silva, as leader of the metallurgical union and later of the PT, resisted the dictatorship not only by putting his body into union struggles and going to prison but also denouncing statistical manipulation. During a brief interregnum of a few months, the economy minister of the military regime had no better idea than to underestimate inflation in order to “decrease” inflationary expectations in salary negotiations. Lula hired the World Bank to make an independent measurement, verified the manipulation and made it public, even at personal risk and that of his union colleagues. And he won the fight. The dictatorship quickly restored the reliability of inflation statistics.

In Argentina, INDEC was destroyed for 8 years, from January 2007 to December 2015, at the initiative of an elected government. The adulteration covered not only inflation but also GDP, unemployment, poverty and even foreign trade data. As the facts have not been judged, this story is implicit in a level of country risk that prevents obtaining credit. Consequently, investment does not grow and workers earn low wages.

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that is not done

Despite its various economic crises, Brazil has never confiscated deposits. Argentina did it through inflation or direct confiscation on more than 5 occasions from 1975 to the present. That is why Brazilians save in banks and Argentines save outside of them. Therefore, we do not have a volume of credit (co-opted by the State’s fiscal voracity) or a financial system and a capital market for productive investment.

Dilma Roussef was dismissed for pretending that income exceeded expenses, something that was condemned even by supporters of the PT
Dilma Roussef was dismissed for pretending that income exceeded expenses, something that was condemned even by supporters of the PT

Every one or two decades, Brazil suffers the shock of popular indignation, both from the middle class of São Paulo and from the favelas of Rio, who demand trial and punishment on the streets for political leaders and presidents who endorsed and participated in schemes of corruption. Collor de Melo is a clear example of this.

The impact of the Odebrecht case had effects throughout Latin America, with presidential dismissals and resignations of ministers, especially in Brazil, although not without twists and turns, as Lula himself acknowledged in the recent election campaign). In Argentina, specifically, nothing happened: just a brief media impact and the exasperating delay of a factious justice system that seeks impunity for the corrupt and corrupters by prescribing the cases.

Violating budget laws has consequences in Brazil. Not in Argentina.

The case of corruption in the construction of a soccer stadium for the 2010 World Cup generated a massive popular mobilization in Brazil. Lula agreed and forced the PT parliamentary bloc to vote in favor of the clean sheet and eliminate the sheet lists, an issue that later played against him and allowed the rise of Bolsonaro with years of parliamentary experience in a small party.

I do not agree with calling the dismissal of dilma roussef but neither can the political motives of the opposition’s move be denied. In any case, the so-called “fiscal pedaling” or creative accounting of the Budget, which served to simulate that more was collected than was spent, when in fact the opposite occurred, was a popular scandal. even within the PT. Violating budget laws has consequences in Brazil. Not in Argentina. In each crisis, the sum of public power is granted to the president, giving him legislative powers as the “solidarity emergency” and annulling the law of financial administration of the State, violating the National Constitution. The excuse is the crisis. But since Argentina is always in crisis, the exceptionality becomes permanent.

Geraldo Alckmin, from the centrist PSDB, Lula's running mate REUTERS/Carla Carniel
Geraldo Alckmin, from the centrist PSDB, Lula’s running mate REUTERS/Carla Carniel

In Argentina, it is common to point out, without going into depth, the lack of policies that remain beyond the governments. Brazil is an example that it is possible to have “State policies”. Lula promised before Fernando Henrique Cardoso, his predecessor, to maintain policies to encourage trade, macroeconomic stability and fiscal prudence in the electoral campaign that led him to his first presidency. It did so well that international organizations such as the IMF and the World Bank recommended Brazil as an example of orthodox economic policies with social sustainability. In those years, just yesterday, Lula was on the cover of Time magazine. The Zero Hunger plan was sustained and implemented efficiently, even generating savings and fiscal surplus. The reduction of poverty and expansion of the middle class with new demands on political power was the result of the Zero Hunger plan together with fiscal and monetary prudence policies that allowed the persistent and sustainable growth of Brazil.

Bolsonaro and Macri proposed in 2019 a common currency in Mercosur, called the real peso. The president of the Central Bank of Brazil, Roberto Campos Netdismissed the proposal in public in a revealing statement: The Central Bank of Brazil has no projects or studies in progress for a monetary union with Argentina. There is only, as is natural between partners, dialogues on macroeconomic stability, as well as debates about reducing risks and vulnerabilities, while promoting institutional strengthening”. The real peso was not implemented, neither Bolsonaro who appointed him nor his friend Economy Minister Paulo Guedes, kicked him out or contradicted him in public. Campos Neto continues his functions normally.

Finally, the formula of the “left” Lula da Silva (PT-workers’ party) and Gerald Alckmin (PSDB-Brazilian Social Democratic Party) confirms that macroeconomic stability is a priority for progressive leaders. The differences are above all cultural and not in minor details of fiscal policy. Alckmin, a former member of Opus Dei, as a candidate in 2018 in his campaign focused on the fight against corruption, pro-market policies and State reduction.

It is true that other people’s grass always looks greener. But the evidence is that in Brazil there is a lot of noise, but also nuts.

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Why Argentina is not Brazil