"HAVING portrayed itself for so long as owning a monopoly on virtue in political life, the fall from grace of Brazil’s governing, left-wing Workers’ Party (PT) has been spectacular. In the past month, amid mounting allegations of corruption, President Luiz Inácio Lula da Silva has lost a string of his top aides. The latest to step down, on Saturday July 9th, was José Genoino, the PT’s national president. Mr Genoino quit the day after police arrested an aide to his brother (who is also a PT official) at São Paulo’s domestic airport with $100,000 in American dollars stuffed down his underpants and a further 200,000 reais ($85,000) in a suitcase.
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How these various scenarios might affect the running of South America’s largest economy and the management of its enormous public debt is hard to predict. So far there has been little sign of panic on the financial markets, though this might change if the scandals begin to touch Lula’s finance minister, Antônio Palocci, who has impressed investors with his firm control of the public finances. If Lula is so weakened that he decides against seeking re-election, the markets’ reaction will depend greatly on whom the PT puts up in his place: a unreconstructed statist from the party’s left wing? Or the market-friendly Mr Palocci, who would be a strong contender?
Brazil has not done so badly since Lula came to power. Fears of an Argentine-style economic meltdown and debt default have not been realised; inflation has stayed low; and growth, especially in the past year or so, has been respectable. But the PT’s articulation in Congress has been poor—if it did bribe lawmakers, it didn’t get much in return—and it has made ever slower progress on the economic reforms that are needed if Brazil is ever to enjoy an East Asian-style surge in prosperity. Its troubled South American neighbours sorely need the region’s giant to keep on pulling them upwards. Brazil’s scandal, if it ends up triggering a financial crash, risks dragging it, and them, down."
from the economist global agenda.
[...]
How these various scenarios might affect the running of South America’s largest economy and the management of its enormous public debt is hard to predict. So far there has been little sign of panic on the financial markets, though this might change if the scandals begin to touch Lula’s finance minister, Antônio Palocci, who has impressed investors with his firm control of the public finances. If Lula is so weakened that he decides against seeking re-election, the markets’ reaction will depend greatly on whom the PT puts up in his place: a unreconstructed statist from the party’s left wing? Or the market-friendly Mr Palocci, who would be a strong contender?
Brazil has not done so badly since Lula came to power. Fears of an Argentine-style economic meltdown and debt default have not been realised; inflation has stayed low; and growth, especially in the past year or so, has been respectable. But the PT’s articulation in Congress has been poor—if it did bribe lawmakers, it didn’t get much in return—and it has made ever slower progress on the economic reforms that are needed if Brazil is ever to enjoy an East Asian-style surge in prosperity. Its troubled South American neighbours sorely need the region’s giant to keep on pulling them upwards. Brazil’s scandal, if it ends up triggering a financial crash, risks dragging it, and them, down."
from the economist global agenda.
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