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Opinion: Lula’s Conviction is the Consequence, Not the Cause

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Brazil: It’s Not the Economy, Stupid

by Wells Fargo Research Team

A president, Dilma Rousseff, successfully impeached and out of office; the current president, Michel Temer, prosecuted with an uncertain future to say the least; an ex-president, and the leading labor party’s (PT) presidential candidate for the 2018 election convicted to almost 10 years in prison but with still several avenues to delay and fight his conviction before the presidential elections take place; a Congress where a large number of its members have been accused or have pending corruption processes. These are all consequences, not the cause of Brazil’s problems.

The biggest problem in Brazil is not corruption; it is its highly compartmentalized and localized/fractious framework that makes the political system conducive for corrupt activities to take a hold. In the U.S. it would be similar to a “pork-barrel” system gone mad, with the difference being that instead of monies going to pork-barrel projects in the representative’s/senator’s state, they go directly to the intermediaries, that is, to the representative’s/senator’s pockets.

Reforming the Economy is Good, But Don’t Forget the Political System

What the current President of Brazil is doing today is good: trying to pass economic reforms to allow the economy to grow without the need for another commodity and export boom to help the economic expansion. However, what the country urgently needs more than ever is a massive and complete political system reform, something that nobody wants to talk about today.

In the Brazilian case, it is not the “economy, stupid,” it is the “political system, stupid.” What needs to change is a system of incentives that generates today’s (and throughout all of this country’s history) corruption prone political compromises that threaten the country’s progress. The fact Transparency International says that “more than half of the 594 men and women that make up Brazil’s Congress face some kind of legal challenge, including corruption charges” is no coincidence.

This is, perhaps, the biggest challenge for Brazil today. Yes, reforming the economy to be more responsive to changing world tides is a good idea. However, unless the country changes this system of entrenched incentives to governability it will be very difficult for any economic reform to deliver the promise of a better future for the country as a whole.

And, lamentably, nobody is talking about the need for political system reform in today’s Brazil. Until that happens, anything done in terms of economic reforms has little chance of changing the path to the eternal Brazilian promise of “being the country of the future.”