The Fall of the Latin American Left, Part I: Brazil’s Boom and Bust

Yves here. I wanted to emphhsize a factor to consider in the difficulties Latin American (and developing) countries have had in trying to manage their affairs, namely, the impact of advanced central bank monetary operations on them. Our guest writer Ignacio Portes mentions it in his post below, but it is worth discussing at greater length.

Remember how for at least 18 months before the 2014 Bernanke “taper tantrum” that markets around the world were following a “risk on/risk off” trade, with reactions based largely on the latest central bank oracle reading? And that emerging economies were the ones most whipsawed by these trades?

None other than that card-carrying Communist, former IMF chief economist Raghuram Rajan complained about it when he was the head of the Central Bank of India. From a 2014 post in which we first quote a Rajan interview with Bloomberg and then add further comments:

Rajan is blunt by the standards of official discourse…Some of his key points:

Emerging markets were hurt both by the easy money which flowed into their economies and made it easier to forget about the necessary reforms, the necessary fiscal actions that had to be taken, on top of the fact that emerging markets tried to support global growth by huge fiscal and monetary stimulus across the emerging markets. This easy money, which overlaid already strong fiscal stimulus from these countries. The reason emerging markets were unhappy with this easy money is “This is going to make it difficult for us to do the necessary adjustment.” And the industrial countries at this point said, “What do you want us to do, we have weak economies, we’ll do whatever we need to do. Let the money flow.”

Now when they are withdrawing that money, they are saying, “You complained when it went in. Why should you complain when it went out?” And we complain for the same reason when it goes out as when it goes in: it distorts our economies, and the money coming in made it more difficult for us to do the adjustment we need for the sustainable growth and to prepare for the money going out

International monetary cooperation has broken down. Industrial countries have to play a part in restoring that, and they can’t at this point wash their hands off and say we’ll do what we need to and you do the adjustment. ….Fortunately the IMF has stopped giving this as its mantra, but you hear from the industrial countries: We’ll do what we have to do, the markets will adjust and you can decide what you want to do…. We need better cooperation and unfortunately that’s not been forthcoming so far.

Narrowly, Rajan is correct, but the underlying problem is much bigger and most orthodox economists are unwilling to confront it because it conflicts with their free markets religion. Carmen Reinhart and Ken Rogoff, in an analysis that got much less attention that their work on debt levels and growth, looked at 800 years of history of crises and found a strong correlation between the level of international capital flows and the frequency and severity of financial crises. That’s implicit in his discussion of the impact of hot money flowing in and out. The Reinhart/Rogoff finding was confirmed by a 2010 paper by Claudio Borio and Piti Disyatat of the BIS that argued that what drives financial crises is not net capital flows (“global imbalances”) but gross capital flows (too much financial “elasticity” as they called it, or what most of us would describe as too much speculation). But Rajan may in fact be referring to remedies like capital controls when he says, basically, that the industrial economies may not like the remedies that emerging economies implement.

Back to the present post. Voters in countries in Latin America hold their officials accountable for economic performance. Yet the destabilizing impact of hot money in and outflows, brought to them by the tender ministrations of neoliberal orthodoxy, means that the degree of control is limited.

By Ignacio Portes, formerly the economy editor of the English-speaking daily Buenos Aires Herald. He has also published at Pando Daily and NSFWcorp

The world’s attention over the last few months has been focused on the rise of right-wing movements across the first world, and the struggle of the previously-ruling liberal establishment to understand the nature of what hit them. Somewhat buried below those news, however, one can also read about what seem to be the last pangs of another regional alliance going haywire, though with somewhat different protagonists.

It wasn’t long ago that South American governments were seen as the biggest political alternative in a world moving mostly to the right, as parties backed by unemployed and landless movements, trade unions, indigenous groups and socialist organizations took power and pushed for certain re-distributive policies.

Now, the continent’s two biggest economies, Argentina and Brazil, are ruled by coalitions packed with center-right businessmen. And in Venezuela — the country which arguably started to turn the continental political tide to the left back in 1998 — Hugo Chávez’s heir Nicolás Maduro is barely holding to the presidency, losing by a landslide in the last mid-term elections amid frightening levels of social disarray.

Unpacking what went wrong for them will be key for whoever ends up being the next leftist movement to have a shot at power. And much of what went wrong was about the economy.

The fact that those three collapses took place almost simultaneously had a lot to do with the end of the commodity price supercycle that made life so much easier for governments across Latin America throughout the 2000s. But it wasn’t simply a stroke of bad luck with the region’s primary exports.

Wherever you looked, voters also had the growing perception that the malaise was also explained by local policy. And that was much harder to accept both for officials and for their most ardent supporters, who preferred to focus on outside factors, be them the global economy or some kind of internal or external political conspiracy.

Not that some degree of conspiracy couldn’t be a factor. Dilma Rousseff’s ousting in Brazil was largely an exercise in hypocrisy from a political opposition mired in corruption scandals and with several past episodes of embellishing the budget’s figures. Yet it accused the government of exactly those two things, first to switch sides from congressional allies to staunch enemies and then to impeach Rousseff.

But none of that would have worked hadn’t Rousseff’s government also been under growing popular pressure since the country fell into a recession in 2014. Rousseff had already lost most of the middle class before that. Her response of a Greek-style, slow austerity plan during the next two years only helped her lose a large part of her harder-core electoral base. With the recession deepening and unemployment soaring, Rousseff’s approval ratings plunged below 20%. Her former allies turned on her and there was no way back from there.

Brazil’s Workers’ Party fell into the classic emerging market boom and bust. The capital that had flown into the country with the commodities at high prices made it easy for the government and the private sector to take on debt and finance a larger expansion. The hype made Brazil an easy sale. In 2009, The Economist famously printed Jesus’ statue at the top of Rio de Janeiro’s Corcovado mountain taking off from the ground as if it were a rocket, illustrating a story about the country’s supposed transformation. The government seemed to believe it too, embarking into grandiose, costly projects to host the 2014 football World Cup and the 2016 summer Olympic Games announcing Brazil’s arrival into the global center stage, while also playing up the significance of the massive (but hard to reach) oil deposits discovered off the Brazilian coast.

But the foundations of the boom weren’t really solid. The country’s currency, the real, appreciated beyond what many local industries could resist in the long run due to the sudden influx of foreign capital. Protectionism and subsidies to some of Brazil’s top business owners tried to compensate for that, but the costs of doing so started to mount.

When commodity prices stopped helping, the underlying problems surfaced. By 2013, The Economist ran exactly the opposite cover than in 2009, with Jesus’ statue crashing down after a failed launch. Short-term investors panicked and moved their cash elsewhere. Suddenly, re-financing public and private debt became much harder. Millions of Brazilians started struggling with defaulted loans for the consumer goods they had recently purchased, and repayments only got harder when the Central Bank also raised interest rates to try cut inflation. Subsidies to companies became hard to sustain too, while basic services and infrastructure, which never improved much, started suffering even more, with the tightening budgets focused on completing the billionaire Olympic and World Cup stadiums and luxury hotels. Even oil failed to deliver, both due to the plunge in international prices and the massive corruption schemes uncovered in the state-run Petrobras, which threw the company into disarray.

The question, then, is why did the Workers’ Party go for policies that would end up destroying its popularity and its grip on power?

A tentative answer, unglamorous as it might be, is that they didn’t know what else to do. Their problem could be seen as another manifestation of a general failing of the post Cold War left: the lack of a trusted economic programme of its own, which forced them to borrow from here and there as circumstances presented themselves.

They used a bit of orthodoxy to avoid “scaring” the markets when they first took office in 2003, tried to take advantage of those first moves by leveraging the credit they were given as a result, and added some re-distributive policies when there seemed to be room for them, all of that almost inevitably mixed with the endemic corruption schemes and inefficiency troubles that seem to mar all of the region’s politics (but that hardly came to the surface during the boom times).

When the crises came, the government tried some countercyclical moves at first, but Brazilian laws made them less effective than normally expected, as private and public debt could not be diluted due to indexation clauses written into contracts, keeping the burden high despite some stimulus. So they resumed the international bond market appeasing as a (failed) last-ditch effort, with political scandals erupting in the background as capital flight and coalition disbanding made the end increasingly inevitable.

Brazil’s elites decided for a transition behind the backs of the electorate, backing Rousseff’s former VP Michel Temer, a man from the ideologically flexible PMDB party, to take her place after a largely ridiculous impeachment process where the charges against the President were barely even mentioned. Unconcerned about his lower-than-Dilma popularity, the possibility of re-election or the need to be loyal to his voting base, Temer is now enacting a much more thorough austerity program that has slightly turned markets around, but which has seen unemployment continue to skyrocket, now reaching 13% percent, up from 7% just a couple of years ago.

Could it have gone differently? In the most short-termist of views, it’s hard to see how the Workers Party could have held on. Falling governments are the norm amid huge economic crises with no seemingly end in sight, and this was Brazil’s largest recession on record. In a European-like parliamentary system, the situation would surely have led to a vote of no confidence, used in similar circumstances to oust Prime Ministers in more democratically-friendly fashion.

But as we’ll see in parts II and III, the multiple roads taken by other left-of-centre coalitions in Latin America showed that the Workers Party’s long-term approach was just one of many possibilities.

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31 comments

  1. Ed

    Actually I think the critical strategic mistake here was made by the Brazilian right, which had the option of just waiting until 2018 and then taking power in a normal election. They may have been spooked by the prospect of running against Lula again (though they have beaten Lula in the past several times). Or there may have been behind the scenes US pressure for a color revolution, due to Brazil’s previous closeness to Russia.

    But not just waiting until the election and then taking power on the normal pendulum swing will blow up in their faces.

    The overall Workers’ Party strategy was appropriate for the situation they were in. My only real criticism is political, they should have made winning statehouses more of a priority and less so the presidency, but you have to run a presidential candidate, and when you have a candidate like Lula you are going to try to capitalize.

    1. RabidGandhi

      I hope you’re right that it was a mistake. Every poll I have seen shows Lula easily winning any election, and the Brazilian capitalist class was well aware of this. In fact there was the pathetic incident where Folha de São Paulo intentionally obfuscated poll data showing that 62 percent of Brazilians want new elections and they would have voted for Lula. The stunning speed and extent of the destruction wrought by Temer (and Macri) shows that the right wing is convinced that this may be their only shot at power, so they need to get in and obliterate as much of the welfare state as quickly as possible, like vandals who know the security guards will arrive any second.

      That said, I agree that the impeachment debacle shows that PT needs a far bigger presence in congress and in the governorships, otherwise it is vulnerable to another constitutional coup. However, I disagree that “the overall Workers’ Party strategy was appropriate”: they were gravely wrong to implement austerity in an economic downturn.

    2. PKMKII

      My only real criticism is political, they should have made winning statehouses more of a priority and less so the presidency

      Now that sounds like a familiar criticism.

    3. Harry

      The Brazilian right had no choice. If Dilma had been left in charge she might have chosen to sacrifice a whole bunch of corrupt businessman and politicians to placate the middle class. Someone was going down. The only question was who.

  2. Left in Wisconsin

    Well, I guess I will wait for parts 2 and 3. Thus far in the story, it is hard to see how Brazil, Argentina and Venezuela represent three cases of the same phenomenon.

    1. Ignacio Portes

      Nah, their approaches were different for sure, I think it will become clear in far more detail starting in the second post. Part of the point of the series is to show that the governments fell into different failure modes, despite some common themes such as international economics (commodity prices first helping a lot, then not so much) or the fact they were all part of a regional political alliance.

  3. johnnygl

    I think this represents a clear example of the failure of 3rd way politics again. The jackals on the right in Latin America do not and will not respect parties of the left, no matter if they stick with orthodoxy. They must be confronted and beaten with deeper reforms and a well-organized base. Ecuador’s recent election shows what can be done. Correa’s party has achieved its best result ever and still won even though the opposition was united this election.

    1. RabidGandhi

      But Rousseff did use the stick of orthodoxy, and she was overthrown nonetheless!

      “‘I know your works: you are neither cold nor hot. Would that you were cold or hot! So, because you are lukewarm, and neither cold nor hot, I will spew you out of my mouth.'”

      1. JohnnyGL

        “But Rousseff did use the stick of orthodoxy, and she was overthrown nonetheless!” – Exactly! The lesson for parties of the left is not to trust the right. They are not your friends. They will stick the knife in your back at the first chance!

  4. Alejandro

    As far as the question of “how”, Yves intro and 2014 post was more insightful. Parsing relevant facts from irrelevant facts seems always a grind, and discerning facts from opinion seems even more so. Context always matters, and proportionality often seems distorted or missing, imO. I’ve gravitated towards the opinion that “capital” seems a euphemism for power, “capitalism” seems a euphemism for a network of unaccountable, unelected “Davos” insiders(aka tPtb) , and “capitalists” seem to be the gatekeepers that keep the outsiders outside…the power to shape, re-shape, form, re-form, structure, re-structure, structurally adjust and re-adjust etc., a social order that willingly or unwittingly serves these insiders as the highest priority and loftiest of purposes, at the expense of anything and everything else. Which is why I’ve also gravitated towards the opinion that “capitalism” and “democracy” are not only antithetical to each other, but irreconcilable…a neoliberal project that facilitates a virtual-parliament, where “governance” is done through “capital” flows, by and at the behest of unseen, unaccountable, unelected insiders.

  5. RabidGandhi

    Anecdote: When I was in Brazil last December I asked everyone I could why Dilma was impeached. The near unanimous answer was “por corrupção” (the outliers were two responders who, interestingly, said it was because she was unpopular). While Ignacio’s excellent post does hint at this, I think it’s important to stress the battle for “hearts and minds” currently underway in LatAm that, in the case of Brazil, has led to Rousseff losing her base and the far right returning to power.

    Yves and Ignacio look at two important aspects, with Yves focusing on deleterious capital flows and Ignacio on the resulting fiscal policy. Ignacio’s point is particularly salient, and one that often gets lost among leftist pundits prone to ideological Manichaeism:

    Her response of a Greek-style, slow austerity plan during the next two years only helped her lose a large part of her harder-core electoral base.

    This, IMO, is the number one reason that led to Rousseff’s overthrow: Dilma inflicted austerity on the working class and it abandoned her, leaving her vulnerable to a rightwing attack. But how can I say that when it goes against the findings of my (highly unscientific, anecdotal) survey? Let me answer that with yet more anecdotal evidence.

    Here in Latin America there is an almost universal narrative as to why we have so much poverty, that goes as follows: “we live in a resource rich region, but we are plagued by ‘corruption’, which means politicians with their hands in the till. We wish we could have safe roads, sewers, transportation, hospitals… but the state always ends up bankrupt because the politicians steal all the money”. (At this point the narrative gets taken over by political allegiances and media memes: “what we need to do is throw these corrupt bums out of office and bring in [enter name of political party supported by the media]”.

    This narrative is, of course, total mierda de toro. First the state cannot go bankrupt, so that should be BS tell n° 1. When Rousseff’s base saw their infrastructure, pensions and jobs cut, it was not because Rousseff is a corrupt politician with her hand in the till, bankrupting the state. Even in Brazil, which has a particularly corrupt political elite, they rob millions when the economy is a matter of hundreds of billions. Yet like so many revolutionaries of her generation, Rousseff is solid on socialist ideology when it comes to politics, but when it comes to economic understanding, not so much. So when the international economic crisis came to Brazil, she appointed the Finance Minister who seemed to know something about that economics stuff: Washington Consensus Superstar Joachim Levy. Levy sold her the usual neoliberal BS line that “the state is broke, TINA, we need to cut social programmes”, yadda yadda. And austerity was suddenly on the menu.

    Meanwhile, the monopolist media conglomerate O Globo broadcasted everywhere 24/7 that Dilma was corrupt with the usual narrative. If you’re in a favela and you see your life getting worse because of budget cuts and you hear the non-stop “Corrupção!” narrative from the media, in the absence of a media and education system that tell the truth about economics, there is no way you stick your neck out to support Rousseff. Here the media and its oligarchical overlords ensure that people have a hard time differing between millions and trillions, between microeconomy and macroeconomy. The TV is full non-stop with caterwauling that this or that politician might have stolen $10m and they incorrectly associate that with the macroeconomic situation caused by the government’s bad fiscal policy.

    In sum, yes the QE/ZIRP capital flows play a role. Yes this was used to push the PT to make bad fiscal decisions. But there is also an ideological battle on in Latin America, where the oligarchic-dominated media are pushing a false ‘corruption’ narrative to take advantage of the fiscal missteps of ostensibly left-wing governments. While these economic own-goals are definitely the key, if it were not for this false narrative, the PT, Kirchnerism, Chavism… even Lugo in Paraguay would still be in the drivers seat.

    1. JohnnyGL

      RabidGandhi, always enjoy your comments.

      Personally, yes, the media is rotten and that’s a tremendous problem. The plunging economy (caused by int’l capital tidal flows + austerity) + media narrative of scapegoating is, of course, how the script goes to throw left-leaning govts out of power. However, I don’t think that gets you ALL the way there.

      Otherwise, how to explain Venezuela and Ecuador? The oligarchs ran the same playbook in all countries in LatAm. But it doesn’t always work.

      1) Venezuela is arguably MORE vulnerable to capital flows and commodity prices than in Brazil. The government has been handicapped by its own incompetence (especially with regard to the currency, as Comrade Haygood will tell you any chance he gets!). The Chavista government has also had plenty of corruption problems, at least somewhat linked to those bad currency policies. Yet, somehow, the government is still hanging in there. In fact, its popularity seems to be on the rebound as the population gets tired of the violent, extremist idiots that seem to be leading the opposition. In my view, they’ve kept a core of supporters, who have stayed loyal and haven’t been sold out by their government. Those core supporters are organized and actively pushing back against the hard-right in the country. This seems to be enough to endure the turbulence.

      2) Ecuador’s example is also telling. Correa’s party, Allianza Pais, just hauled in its largest ever vote total. They seem less corrupt and incompetent than the Chavista party in Venezuela, but face the same problems of tumultuous capital flows and rabidly hostile media with the constant accusations of corruption that are present in Venezuela and Brazil. Yet, in spite of this, they continue to increase their support and expand their base.

      From where I stand the lessons seem clear for lefty parties of Lat Am:

      No compromise with the right or with orthodoxy. They hate you and will slit your throat if you let them. Do not abandon your base (and they won’t abandon you). Organize your base and be prepared for crisis. These things let you survive as a political force. If you show competence and reduce corruption (in reality, not according to the media narrative), then you’ll get even stronger and do even better at the ballot box.

      1. RabidGandhi

        Thanks Johnny, likewise. With regard to “ALL the way there”, I tried to be clear that the main reason for Rousseff’s fall was her austerity policies, with the media playing a crucial role thereafter. With regard to Ecuador vs. Venezuela, BOTH made currency missteps, as Correa’s biggest failure was that he was never able to wean Ecuador off the USD. The main difference I see between the two countries’ leftist governments is that Correa was somewhat more successful at diversifying the economy whereas Venezuela is still far too dependent on oil rents. In all the South American economies, the key is developing an internal market by bringing the excluded masses into the economy and ditching the commodity exporter model. Nevertheless I agree with your point about the Venezuelan right: they are overplaying their hand and Maduro is gaining strength (eg, yesterday’s poor turnout opposition march).

        I’d also point out that the last elections in the countries in question (Ecu 2017, Bol 2016, Arg 2015, Bra 2014, Ven 2013) were all photo finishes (with ≈2% margins), where the slightest tweeks could have reversed the outcome completely, so it is hard to talk about mandates or “what the people want”.

        Lastly you discuss corruption as being a factor for the Maduro and Correa administrations. Does that mean you disagree with my point that “corruption!” is just a rightwing meme that has little to do with most people’s household economies?

        1. JohnnyGL

          RabidGandhi,

          Sorry, squishing too many thoughts into my comments with limited time to write (at work).

          To clarify my addition to your point about austerity being the real Rousseff killer, I’d say, “Yes, that’s absolutely the proximate cause. However, there are underlying reasons that are just as important that shouldn’t be left out of the story”.

          Perry Anderson’s article in LRB is a real must read on what has happened in Brazil. He covers a wide range of issues, including why the PT has failed in a broader political context.

          https://www.lrb.co.uk/v38/n08/perry-anderson/crisis-in-brazil

          If you’re interested, read the part that starts: “Half-hidden, the roots of this debacle lay in the soil of the PT’s model of growth itself. From the outset, its success relied on two kinds of nutrient: a super-cycle of commodity prices, and a domestic consumption boom.”

          Anderson goes on to discuss how the PT failed to improve public services, only relying on the private sector. Finance Minister Mantega tried to stimulate private investment and also attempted to split off industrial interests away from big finance. That attempt failed spectacularly. Again, here’s Anderson’s money quote: “In the belief that this must rally manufacturers to its side, the government confronted the banks by forcing interest rates down to an unprecedented real level of 2 per cent by the end of 2012. In São Paulo the Employers Federation briefly expressed its appreciation of the change, before hanging out flags in support of the anti-statist marchers of June 2013.”

        2. JohnnyGL

          Re: Ecuador election, yes it was close. However, I think the margin of victory doesn’t tell the full story. Allianza Pais keeps building its vote totals every election since 2006. Check wikipedia on this. Correa had a big breakthrough from 2009 to 2013, but Moreno didn’t lose votes, he got more. I could be wrong, but that makes me thing they’re building something more lasting than what PT did.

          Just looking, Rousseff couldn’t match Lula’s vote totals, neither could Maduro match Chavez’s. Somehow, Moreno beat Correa’s numbers from previous elections. That might be a real sign, or might not.

          Lastly, regarding this, “Does that mean you disagree with my point that “corruption!” is just a rightwing meme that has little to do with most people’s household economies?” — No, I think you’re right. But I do think corruption is more of a problem in Venezuela. Unless you’ve got some other explanation for why they won’t fix the screwy currency policy that seems to magnify problems, rather than dampen them (as a well managed currency should do)?

          I can only guess that someone fairly important is making a lot of money in cross-border smuggling to Colombia.

          I think Ecuador seems to have done better on corruption, the best the media could do was drum up a scandal that sounded ridiculous on its face. I don’t recall the details, but it seemed like they were really desperate to latch onto something.

          1. Ignacio Portes

            Corruption is important, just not in the way of the simplistic media spin that you mentioned – obviously what a President might take home is irrelevant when compared to a national budget or a GDP. (and Dilma, by the way, doesn’t seen to have been personally corrupt at all; even if there was obviously corruption at her party, I have never seen any hint that it might have help line up her pockets)

            A topic that I have never read anyone write about in depth is how left political alternatives can finance their campaigns. Obviously, if you are a business candidate you’ll find it easier to get donors, but if you want to build a working class or socialist party then it gets tougher. And in Latin America, this has often led to all kinds of shady deals with the underworld, with public works contracts and so on. And the problem is the economic distortions that this brings: to keep those dirty schemes that finance your party going, you have to create infrastructure programmes not where they are most needed but where it’s easier to take a cut off without anyone noticing it (this happened a lot in Argentina), you have to take part in corruption schemes with the country’s oligarchs (see Brazil), you have to make deals with murderous criminal cartels and so on. This can be incredibly damaging: it weakens the economy for starters, but it ultimately even derails the point of the political project completely, turning a political party into a bureaucracy whose main goal is just self-perpetuation. Venezuela’s military trying to hang on to power and to its failed economic policies no matter how in order to keep its power over black market deals is part of the explanation for that country’s crisis, for sure, and another example of this.

            1. RabidGandhi

              Example 1: Upon assuming the presidency, the Macri administration immediately embarks on a plan to devalue the peso. Four of Macri’s ministers, including éminence grise Marcos Peña buy dollar futures before the devaluation and make out like bandits when the peso plummets.

              Example 2: Upon Macri taking office as Buenos Aires Mayor, his cousin’s construction firm, IECSA, suddenly jumps from virtual anonymity to being the third largest recipient of public works contracts.

              Are these examples of corruption the same? I would argue no. In example 2– which is the type you mention and which is the type most screamed about in the press– the damage is that favouritism may have led to not the best postulant winning the bid, thus providing the public with inferior infrastructure. But there is a general good that occurs: insofar as Calcaterra hires local workers and uses domestic materials, the economy will grow from the multiplier effect. (Of course insofar as the money is not used for construction and instead gets parked in Miami, there is a net loss.) While I agree infrastructure does not get well distributed– I burn with rage when I see stupid multi-million peso overpasses in Buenos Aires while my neighbourhood doesn’t even have proper sewers– there is no reason why both can’t be built; Argentina has plenty of people and materials just waiting to be employed.

              Example 1 on the other hand is the type of corruption we should worry about. It involves politicians making decisions not based on the public good, but rather to benefit themselves and/or a small group of powerful people. The devaluation of the peso immediately went to the supply chain and inflation skyrocketed, resulting in a 12% loss in real wages. This less-publicised corruption affected the pocketbook of everyone in the country, whereas the eternally repeated infrastructure issue– be it Calcaterra or Baéz or whoever– is not even noticeable in the average citizen’s economy. Nevertheless, when Globo shows the latest accused in Lava Joto, the public inevitably gets angry because they think that the suspect’s alleged crime cost them money personally; that he is the reason why there is no money for housing or pensions. No, the reason why there are housing and pension cuts is because it was a political decision by the Dilma/Temer governments; Lava Joto has nothing to do with it.

              ______

              Secondly, with regard to campaign financing here’s my two cents: I think it is less of an issue here then it is up north. First because mandatory voting makes GOTV largely unnecessary, thus greatly reducing the amount of money needed. Secondly, because (for better or worse) all the Mercosur countries have very strong party apparatuses that perform much of the campaigning work. And thirdly because of (partially) public funded elections. In this regard, politics here is not as much about fundraising as it is about lining up all the unions and social movements. But this system giveth and taketh. On one hand it often involves mass mobilisations that are largely based on individuals’ political motivation and organising efforts; but on the other hand it entails party patronage systems that often fund goons who carry out ratf*cking operations and small-scale political violence (the mafias you mentioned? eg, the AAA in the 70s; or more recently the thugs who stormed the Santa Cruz Governer’s House, etc.). This is not to say that there is not a growing trend toward expensive marketing campaigns and black money, but for now at least it is more subdued. And lastly, in the case the left needs campaign money, I think the Sanders 2016 campaign provided an excellent, viable model.

              1. Ignacio Portes

                I’ll discuss the dollar futures case in part III, but as for the type 2 cases, I still believe they are quite significant, as the amount of inefficiency they create can be staggering. Just look at what happened in Argentina with railroad infrastructure, where a large part of the bids to renew or maintain it during the first years of the Kirchners were basically a curtain for kickbacks to finance the FpV’s political costs (ad campaigns are the tip of the iceberg: local party offices, rallies, pamphlets, friendly media, etc cost an absolute fortune), resulting in dreadful freight and passenger service until the 51 deaths of the Once crash in 2012 forced a change in policy and made Fernández de Kirchner bring Florencio Randazzo to the Transport Ministry to try and do a serious job for once in place of Julio De Vido’s bagmen. And that is just one example, imagine how the political and economic costs can mount if you add other areas.

                As for campaign financing, I agree fully that Sanders’ model has a lot of positives to copy in Latin America (plus unions could play a better role too). But don’t forget that the party apparatuses you mentioned can also get expensive and their funding shady (ranging from tolerating local goons as you said to gambling or arms trafficking, I think we’ve seen it all), and that the public funding of campaigns, while good, doesn’t even touch the real cost of politics for a big party, according to what everyone who has taken a look into the subject here in Buenos Aires has told me. I think it’s a huge issue for most of the the non-business parties in the continent, although I mostly left it out of this series to keep it down to a reasonable length.

                As always, a pleasure to take part in the comment threads of this site.

        3. vteodorescu

          I live in Brazil, and RabidGandhi is right! Rousseff lost her base because of the economic contraction of the country. People might say it is the corruption, but that is for show. She was caught in the worldwide failure of the left, who cannot see through the smoke and mirrors that the right is hypnotising everyone with. Until the left has an economic plan, they will stay as servants of the right, with a leftie name.

    2. Left in Wisconsin

      While these economic own-goals are definitely the key,

      Rabid G: could you expound on which own-goals were problematic, what could or should have been done differently? There seems to be an argument that:
      1. Rousseff mis-steps led to lack of support among people who were, and apparently still are, Lula supporters. Presumably the argument is that she could have run large fiscal deficits and targeted spending to poor? Or canceled the Olympics?
      2. This lack of support made possible soft coup.

      From what I know of what happened, I am skeptical of both claims. And seems to completely absolve hot money of any responsibility, which I took as the main point of the post. But I claim no expertise.

      1. RabidGandhi

        Yes that is the argument: Rousseff implemented two rounds of austerity, cutting pensions and capping spending when Brazil’s economy was already retracting. As readers here well know, these pro-cyclical measures always have the same result: throwing the country into deeper recession. Each round of austerity coincided with steep drops in Rousseff’s top approval rating (Optimal/Good). Meanwhile, Lula– who never cut pensions and spending– remains the most popular politician in the country.

        And as I made clear in my post (as Ignacio did in the OP), these factors are just part of what led to Rousseff’s impeachment; no one is “completely absolving hot money” which is certainly another part of the equation. That said, given mainstream economists’ monetarist bent, there is a tendency to see everything that happens in Latin America through a capital flow/commodity lens (cough *Haygood* cough). But this only holds true to the degree that these countries are dependent on finance and commodities. And the whole mantra of these leftist governments has been to supplant finance/commodity dependency with an internal market. So with all respect to Yves (and I think she might agree), to the degree to which they have been successful at creating this internal market, the hot money argument does not come into play.

  6. Susan the other

    We never get ahead of the problem. In the early 70s Nixon was advised by Sec. Treas John Conally, of Dallas fame, that we could go off the gold standard bec we could basically do anything we wanted to generate growth in our own economy and that the imbalances that would follow for other countries “were their problem.” This attitude preceded the free-market mania that followed, thinking that the market would balance it all out. So, starting with Breton Woods and an incomplete monetary system which did not address the real world, we have come to 2017 wherein candidates are running for office without a party and sovereign states don’t understand the power of their own sovereignty. We need a “peg” – a new rational one. Gold has always been irrational, but the environment is as rational as you can get. And every sovereign country has an environment. The environment is everywhere! Whereas the nutty obsession with gold made it valuable and it was arbitrarily priced at some “standard” to which all else was valued (insane, right?) we could do it the rational way and price the environment at some value and thereby eliminate inflation altogether (because you can’t inflate a currency that is both ubiquitous and invaluable already) and at the same time have a resourceful, healthy world. Everywhere. This would get rid of all the neoliberal money hoarding and all sorts of ills. But, I’m dreaming again.

  7. Kalen

    Another great discussion set up by Yves but the article, probably because of limited length, could only scratch the surface of what is and was brewing in Latin America in last decade or so and Obama’s policies of global color revolutions having a lot to do with it.

    Moreover, it is hard in English speaking media to figure out what is going on in Latin America especially recently in Venezuela, Ecuador, Bolivia even Brazil or Argentina but one thing in my opinion, is sure there is no socialism there, nor ever was.

    Instead there were more or less social-democratic governments trying to elevate horrible poverty of the peoples due to extreme exploitation by local oligarchs, while in all cases leaving intact capitalist/neo-feudal system and social structures including reactionary religious organizations as it was there before. Now all those governments are under a direct attack from Global oligarchy.

    It may sound harsh but the main problem is that Maduro and other “people’s” leaders in Latin America were being heavily influenced or down right corrupted by western money. Yes, leftist leaders directly or due to their global policies withd USD dominated financial system are in Wall Street pockets already. Too many friends of Lula, Chavez and now Maduro revolution have bank accounts in New York to appropriately respond to this blatant aggression we are witnessing in a revolutionary manner, as they should if they did not betray their people.

    Those South American springs we are witnessing in Argentina, Brazil, Venezuela, Bolivia, and Ecuador, and soon Cuba etc., are not due to lack of cooperation between popular South American leaders and US.gov and Wall Street but that they cooperate to little to win approval of Washington hegemons, namely they do not exploit and betray their people hard enough.

    It is a world oligarch’s quarrel and those who do not heed the warnings are expelled from the cushy country club of globalists, and that’s why they are so polite, yes polite, facing Washington economic aggression. But there is deeper reason for it.

    Former radicals, communists, worker trade unionists or native populists and other leftist such as Lula-Rousseff, Chavez,(Maduro), Corea, Morales etc., after being brought to power, via peoples popular movements spawned by catastrophe of raging neoliberalism in previous decades , not on their own merits as a true leftists since they later betrayed the true left, but on the wave of global capital instigated booms of commodity demand from China itself stimulated to the brink of orgasm via Wall Street money changers and now is awaiting eruption anytime and following by a long secular economic flaccidity which will turn this mockery of workers’ led Chinese government into openly fascistic/regional imperial regime as it already is.

    One must realize that those recent South American leftist revolutions, including Chavez revolution, were underwritten by Wall Street bubbles, one might have asserted wrongly, that they were being skillfully exploited by leftist leaders while in truth they fell into a trap that ultimately doomed and condemned truly leftist Marxian or even Maoist/Leninist revolutionary political movements in South America into political oblivion for decades to come.

    And hence sweeping counterrevolutionary wind of Washington doing, blowing across the South American continent.

    And that seems to be the plan to discredit any political left as a vital and even viable or effective political force in South America, Europe and elsewhere.

    It took him eight years but Obama Mission was Accomplished. And that’s his legacy few wants to talk about.

  8. marku52

    Here’s a similar take from Ian Welsh:

    “Obey the Laws of Purges

    “Let’s not dance around. Your first steps will be breaking the power of current economic and political elites who are not willing to convincingly join you or at least let you rule without trying to sabotage you.

    You must do this all at once. When it happens, it happens to everyone it is going to happen to. This is Machiavelli’s dictum, and he was right. After it has happened, those who weren’t broken know they’re safe as long as they don’t get in your way.”

    Break up the banks and the media, have competent administrators ready to step in, and insulate yourself from foreign cash flows as much as you can. Otherwise you will be sabotaged.

    7 Rules for Running a Left wing Government.

    http://www.ianwelsh.net/7-rules-for-running-a-real-left-wing-government/

  9. Paulo A Franke

    I am transmitting from Brazil, having witnessed in situ the last 15 years of surreal economics.

    The current ‘crisis’ has nothing to do with politics, ideology, government policy, corruption, etc.

    In fact, there’s no crisis at all happening in Brazil.

    From 2003-2014, Brazil went through a surreal bubble of credit (and corresponding debt), equally divided amongst families and corporations.

    The total debt stock went from 25% to 56% of GDP, in eleven years. That’s roughly 3% of cocaine-like GDP injected into the veins of the economy, over quasi-eternal 11 years.

    The debt bubble is now gloriously bursting. Two years of bubble deflation already checked, my guess is that the Brazilian economy should return to its natural size around 4Q 2017 / 1Q 2018.

    From there on, there’s slow growth in the works. We Brazilians do not know how to grow via investment and innovation. And everyone is vaxxed against diving into debt again.

    1. johnnygl

      Without digging into details of your numbers, I don’t think what you wrote is factually incorrect. However, the tone of what you wrote gives no agency to any person or institution. Big debt bubbles don’t just ‘happpen’ like bad weather. They happen because of policy decisions made by people, individually and as groups.

      Why those decisions were made and how they succeeded or failed is the part worth discussing.

      1. Paulo A Franke

        I think that the Brazilian 2003-2014 debt bubble happened exactly as you wrote, like bad weather.
        We all – families and corporations – discovered back then that we did not carry debt. Like everyone else in the developed world did.
        So we all just thought – why not?
        And went for it. Big time. Huge fun. World soccer cup, Rio Olympic games, party time!
        You also state that bubbles must have an agency, they do not come up only like bad weather.
        That is true towards the end of the bubble, after 2010.
        Private banks started to foresee the burst and began to pull out of the fray.
        Public banks were called upon by the PT – Workers’ Party government to fill the lending gap.
        The economy growth bubble was leaking air all over the place during 2014 but PT managed to fool everyone and reelected Dilma in October.
        It all exploded after Dilma started her 2nd mandate, early in 2015.

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