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Speaker 1: Learn more at Bloomberg dot com, backslash lens. What the
Speaker 1: heck is going on in Brazil? Didn't they just remove
Speaker 1: one president amid alleged corruption, Then the vice president took over.
Speaker 1: Now he's facing demands he quit. He reportedly okayed hush
Speaker 1: money to a former House speaker, who of course is
Speaker 1: himself in jail for graft impeaching. Dil Marussef, the previous president,
Speaker 1: was supposed to put an end to the country's problems
Speaker 1: at least according to one narrative, and all the while
Speaker 1: the economy, one of the world's largest, continues to contract
Speaker 1: the country's worst recession. Welcome to Bloomberg Benchmark, a show
Speaker 1: about the global economy. I'm Daniel Moss, executive editor for
Speaker 1: Economics in New York, and I'm Scott Landman, an aclothic
Speaker 1: editor with Bloomberg in Washington. You know, Scott, you thought
Speaker 1: politics in the US had become divisive. Yet here we are,
Speaker 1: for the second time in a year, we have to
Speaker 1: sort through this Brazilian thicket of economic and political difficulties.
Speaker 1: Thank god we have Viviani Rodriguez here with us, managing
Speaker 1: editor at Bloomberg for Latin American economic and government news.
Speaker 1: In a way, I'm sorry to say, we're welcoming you
Speaker 1: back a second time to talk about this. Yes, it
Speaker 1: is almost like stranger than fiction than I mean. To
Speaker 1: be honest, I finally difficult to believe that both Brazilians
Speaker 1: expected to be living the situation again just about twelve
Speaker 1: months after you impeach the president in a very traumatic form.
Speaker 1: Now you're probably the best person of Bloomberg to decipher
Speaker 1: all this for us. You were born in sal Polo.
Speaker 1: You reside in New York, You've lived and reported in Brazil, Argentina, Mexico,
Speaker 1: and now you're in change of not just Latin American economics,
Speaker 1: but Latin American government as well. So look, help us
Speaker 1: out here. The narrative went, once we get rid of
Speaker 1: President Dilma Russov, all the country problems will be solved
Speaker 1: and the economy can take off. What. Yes, there's there's
Speaker 1: two waste of seeing this question, right. I mean, there
Speaker 1: was a lot of instability, giving the situation of Russef
Speaker 1: and the Workers Party in the build up for the
Speaker 1: for the impeachment, actually the country was just completely unmanageable
Speaker 1: and governable. So people really wanted to see that situation addressed,
Speaker 1: and a lot of people, especially markets, right said, while
Speaker 1: the moment Roussef goes, the moment the Workers Parties goes
Speaker 1: from Brazil presidency, I mean, everything will be served in
Speaker 1: the markets will take off, Everything would be just fine. Obviously,
Speaker 1: what happened is that the state of poor state of
Speaker 1: Brazil economy was so tremendous, right, that the lift back
Speaker 1: that economy from the depths of a horrific recession proved
Speaker 1: way more difficult than anyone has anticipated, especially in the
Speaker 1: absence of some sort of commodity boom helping in economy
Speaker 1: like Brazil. But also the fact that the Brazilian political
Speaker 1: system it's really flawed, and that that corruption has been
Speaker 1: running rampant in the system, and that is not something
Speaker 1: that you eradicate. So in one go, Viv, can you
Speaker 1: elaborate on that for a minute and put all that
Speaker 1: in some historical context for us? I mean, what is
Speaker 1: it deep in the political and economic structure of Brazil
Speaker 1: that produces these lurches from crisis to crisis and it
Speaker 1: produces so much corruption as you just mentioned, well, I
Speaker 1: mean crisis to crisis, I would say, I mean, obviously
Speaker 1: these are emerging market economies, I mean heavily dependent on
Speaker 1: commodity prices. So if you once you want to lie
Speaker 1: just economically speaking, I mean it's it's Brazil is not
Speaker 1: alone in that dependence of externalist stimulus, right, But I
Speaker 1: believe your question is more related to the fact is
Speaker 1: there's something in Brazil and the political system that put
Speaker 1: us uh in this situation? Again? Yes, I know, right,
Speaker 1: I mean it is still pretty much you and say
Speaker 1: a new democracy, new democracy, giving that the country has
Speaker 1: got back from from the dictatorship in right, some of
Speaker 1: these governments and some of these party systems, is we
Speaker 1: have that thirty five parties in Brazil. It's it's a
Speaker 1: very fractured congress. And there's just a way of doing
Speaker 1: business in the countries that has always meddled and and
Speaker 1: and put you big money, big government and big companies together,
Speaker 1: right and and for a lot of people in Brazil,
Speaker 1: especially people in the political class in congress, just just
Speaker 1: the way business has always been done. Can this be
Speaker 1: traced back to its time as a Portuguese colony? Well,
Speaker 1: perhaps it's a little bit of a stretch. I mean,
Speaker 1: there is a culture obviously of the very big states
Speaker 1: owning very big companies and big enterprise, a system whereas
Speaker 1: where bureaucracy is very large and everywhere you go, you
Speaker 1: turn and you have a government arm there. So it's
Speaker 1: it's probably fair to say that you a system of
Speaker 1: you know, buying someone to issue a stamp for you
Speaker 1: to get something done. I mean it's probably happening for
Speaker 1: the past five years, but in this particular case, I
Speaker 1: mean it's it's just that in the last ten fifting years,
Speaker 1: I mean, it became really institutionalized as you involved, pretty
Speaker 1: much everybody and every branch in the government has been
Speaker 1: very especially financing the big conceptions to the big business. Uh.
Speaker 1: I mean you could see, you know, all these companies
Speaker 1: ocuatives and just paying so many deputies and and and
Speaker 1: ministers and everybody just in order to get things done. Now,
Speaker 1: this is a very fast moving story. Put us inside
Speaker 1: the room. What supposedly happened and you just talked about
Speaker 1: getting a stamp for something, all of a sudden we're
Speaker 1: talking about a meat packing company. Well, what what happened
Speaker 1: in this particular situation. Let's contextualize this. I mean, you
Speaker 1: have to remember that for the last three years in
Speaker 1: Brazil you have an ongoing and massive probe Old car Wash.
Speaker 1: We can discuss the name shortly, but this this basically
Speaker 1: what happened here is that there's a group of prosecutors
Speaker 1: of federal prosecutors started really unearthing and prosecuting and going
Speaker 1: after big cover up schemes and kickback schemes, initially involving
Speaker 1: mostly the state oil company Petrol Brass right, But as
Speaker 1: they started digging forward, I mean he started seeing that
Speaker 1: this type of kickback scheme, you know, it was almost
Speaker 1: major companies in Brazil were involved with all of this
Speaker 1: and with the government, you know, with the bags of
Speaker 1: money following in both directions. Here in this particular case,
Speaker 1: I made it. What happened last week is that you
Speaker 1: had two executives connected to JBS, which is the world's
Speaker 1: largest meat producing company. Um. These men are billionaires and
Speaker 1: and as you can imagine, run a a immensely large
Speaker 1: and powerful company in Brazil, like Brazilian stake precisely, and
Speaker 1: they basically recorded a conversation sation with with the president
Speaker 1: in which allegedly the president gave his endorsement for these
Speaker 1: executives to keep paying hush money to the menu sited
Speaker 1: earlier on the former Speaker of the House at Lord Laconia,
Speaker 1: who is now in jail, to just keep quiet, right uh.
Speaker 1: And they presented this recording to prosecutors in car wash
Speaker 1: as evidence trying to cut some sort of plea bargain
Speaker 1: agreements here to avoid prosecution or you know, or avoid jail.
Speaker 1: Vivn Dan, you know, I'm old enough to remember when
Speaker 1: we covered Brazil as one of the four Brick countries Brazil, Russia,
Speaker 1: India and China that were known as the emerging markets
Speaker 1: where you get pretty solid economic growth driven in part
Speaker 1: by commodity boom. And uh. You know, Brazil's economy had
Speaker 1: been growing at a pretty nice rate some years ago.
Speaker 1: And you know, I wonder how much of this corruption
Speaker 1: or how much of this is coming to light because
Speaker 1: you have an economic situation now where Brazil's economy has
Speaker 1: actually been shrinking and it's just not the leading light
Speaker 1: that it used to be. Well, it's definitely part of
Speaker 1: the problem. The economy started to slow a couple of
Speaker 1: years ago, and this aggravated the problems of doom or
Speaker 1: receive for sure. I mean she had to handle unemployment
Speaker 1: and death sits and so on and so forth. But
Speaker 1: there's no doubt also that the crisis itself aggravated the problem. Right,
Speaker 1: So now we're in a situation a little bit the
Speaker 1: chicken and the egg, right. I mean, the tragedy in
Speaker 1: all of this is that we were beginning to see
Speaker 1: after we're near for the first time, uh at last month,
Speaker 1: the beginning of some green shoots here. I mean, there's
Speaker 1: been some progress, especially in inflation front. The central bank
Speaker 1: has been very aggressive to contain inflation. Interest rates were
Speaker 1: going down, so you were seeing people beginning to feel
Speaker 1: more comfortable in taking longer term financing, for example, and
Speaker 1: right now you have brought the country again to a
Speaker 1: complete stand still. We were on the verge of voting
Speaker 1: very key important reforms, especially the pension reformer, was expected
Speaker 1: to be put to to a vote incoming days, and
Speaker 1: now the finance minister just said it's going to take
Speaker 1: it to very least weeks if I mean at all,
Speaker 1: we're going to see these passing. What's some shape or
Speaker 1: form so obviously just does not bode well at all
Speaker 1: for Brazil, So viv just so we can be completely
Speaker 1: clear about this. What troubles Brazil's political class is not
Speaker 1: corruption per se, but poor economic performance. If you want
Speaker 1: to extrapolate mid seventies in the US, the economy wasn't
Speaker 1: doing well. Nixon left late nineties, economy doing well, Bill
Speaker 1: Clinton stays, Brazil economy doing poorly, ruceph leaves economy is
Speaker 1: still doing poorly. Tema question mark, well, I mean, it's
Speaker 1: harder to put together a position right and to get
Speaker 1: your voice heard. If the economy is booming, you know,
Speaker 1: you better have things they are very very strong in
Speaker 1: order to get people's attention right. But when economies are weak,
Speaker 1: I mean, people started going they're going to start investigating
Speaker 1: why they're a weak to begin with, and people want
Speaker 1: to be they want more accountability of the money that
Speaker 1: is out there, and that's when they started poking around
Speaker 1: and realized that a lot of the money. In the
Speaker 1: case of Brazil, it started disappearing. Right Remember Dilma was
Speaker 1: impeached by and large by the meddling with the country's
Speaker 1: physicals accounts. I think it's we shouldn't say that, you know,
Speaker 1: they wouldn't be corruption in Brazil, it's just the weak economy.
Speaker 1: I I disagree with you in that one. I do
Speaker 1: think that it was easier to hide that much easier
Speaker 1: to hide that when things are going fine. Right now
Speaker 1: that things are not going well, I mean, it's it's
Speaker 1: just become way more difficult to uh to high that
Speaker 1: you were stealing villions and villions from from taxpayers. Viv
Speaker 1: can you talk a little bit about the divisions we've
Speaker 1: seen between the what the markets are saying and what
Speaker 1: the public thinks. I mean, you had a pretty significant
Speaker 1: run up in the country's stock market over the past
Speaker 1: year as markets saw the new president's reform plans as
Speaker 1: as a way to boost the economy, and you know,
Speaker 1: the contraction of the economy hasn't been as bad as
Speaker 1: it was before. And the markets took a pretty big
Speaker 1: plunge on the news of this latest uh, the latest
Speaker 1: tape and investigation. And on the other hand, the public
Speaker 1: perception of Timor's policy has been completely a complete disaster.
Speaker 1: I mean, they hate him, don't they. What's going on here?
Speaker 1: You're right? I mean he's an extremely unpopular president. He's
Speaker 1: approval ratings have been hovering around the ten percent mark,
Speaker 1: which to try to again to rule on a congress
Speaker 1: with so many parties is just like almost impossible. And
Speaker 1: and and you touched on a very interesting point. It
Speaker 1: has been a big question market for us here as
Speaker 1: journalists too. I mean, people on the streets hate him.
Speaker 1: People on the streets by and large do not support
Speaker 1: his reforms. People are still feeling the pinch of of
Speaker 1: economic recession. But yet markets just love him, right, and
Speaker 1: we see these fantastic rally I mean predicated on on
Speaker 1: the future Brazil boom that have yet to come back, right,
Speaker 1: I mean, so we we actually even wrote a couple
Speaker 1: of stories and say, well, our our markets a little
Speaker 1: bit overshooting here are going a little bit too too aggressive,
Speaker 1: to too bullish on Brazil, giving that the underlying fundamentals
Speaker 1: of the country are still far from from where they
Speaker 1: should be to justify some asset prices, write some asset
Speaker 1: valuations here, I mean, especially the agrily business sector is
Speaker 1: doing very well or has recovered considerably, but you have
Speaker 1: yet to see some portions of Brazilian industry really rebounding.
Speaker 1: And again that that consumption what we even had a
Speaker 1: name for it in Brazil, which called milagri but alto,
Speaker 1: which was the Brazilian miracle. When you started seeing people,
Speaker 1: you know, using credit cards and buying homes, cars, frades, traveling.
Speaker 1: I mean, this is we're far from our repeat. So I,
Speaker 1: like you, I asked myself, where is that optimism coming from?
Speaker 1: And and again we've been saying that this is a
Speaker 1: fragile government, and we had proof of this last Wednesday
Speaker 1: when the first news first were reported about these tapes.
Speaker 1: I mean, in one hour, this this rally, this bonanza,
Speaker 1: this belief in Brazil just completely disappeared. Right, So our
Speaker 1: suspicion and when we talk to people who really analyzed
Speaker 1: and and and investigate Brazil is that until we actually
Speaker 1: have new direct elections with very legitimate, incredible candidates and
Speaker 1: in a very legitimate, incredible government, right voted again directly
Speaker 1: by by by people. All I mean you, you will
Speaker 1: see anyone in power to to to be really under attack.
Speaker 1: That we have elections in Brazil every four years, just
Speaker 1: like the United States. It's also a fixed term. It's
Speaker 1: easy to forget this. But Dilma Roussef was elected twice
Speaker 1: quite comfortably. So if we have fresh elections in Brazil
Speaker 1: and the economy is still contracting, the car Wash investigation
Speaker 1: is still alive rattling around, where does that leave us. Well,
Speaker 1: the first time that she was elected, yes, she was
Speaker 1: elected quite comfortably. Second time it was a much tighter margin,
Speaker 1: And that in Brazil is a problem, especially because, as
Speaker 1: I told you a couple of times, the shake up
Speaker 1: and in the makeup of the Brazilian Congress. Right. Uh. Also,
Speaker 1: there's been questions that surfaced throughout the impeachment process about
Speaker 1: the way that they portray doing the financing, for doing
Speaker 1: the campaign. The true state of Brazil therese economy and
Speaker 1: and and it has been agreed by some people and
Speaker 1: by some of the authorities that the government kind of
Speaker 1: fiddled with the numbers there, right, so that the economy
Speaker 1: wasn't doing nearly as well as it was in the
Speaker 1: build up to the to her re election. So I
Speaker 1: mean going forward, I mean, and this is what it's
Speaker 1: really interesting. We were we all thought that this was
Speaker 1: going to be a transition government, that Tamer was going
Speaker 1: to be the guy who is going to lay the foundations,
Speaker 1: and you know, uh, and the bleeding of Brazil stabilized
Speaker 1: the economy, lay the grounds, force a couple of big,
Speaker 1: big reforms, and the next group right income to TuS
Speaker 1: any team, you bring the people to the streets, you
Speaker 1: vote for the new new president, and you and you
Speaker 1: have a new country. But now it's all, you know,
Speaker 1: a big question mark again. But let's say then we
Speaker 1: get a great election result, a great slate of candidates,
Speaker 1: whoever they may be, and commodities are still where they are, right,
Speaker 1: can Brazil be great without commodities? And by the way,
Speaker 1: why is it still so dependent on commodities? Well, several
Speaker 1: questions here. First, we don't know if we're going to
Speaker 1: have elections in two thousand and eighteen or if we're
Speaker 1: going to have elections much earlier. We've got to see
Speaker 1: what comes and what happens with these investigations on the president.
Speaker 1: He's now really hanging by by a thread there, right,
Speaker 1: but assuming you know, somehow he pulls straight and then
Speaker 1: we really just get to to the to the earns
Speaker 1: in two thousand and eighteen, I mean, why are we
Speaker 1: so dependent in commodity? I mean, look at the makeup
Speaker 1: of Brazil's as a country. I mean, it's not a
Speaker 1: problem per said to be dependent on on commodities. I mean,
Speaker 1: is you're exploring a natural advantages in Actually Brazil's agree
Speaker 1: business sector is extremely efficient and competitive. So the question
Speaker 1: here is not whether Brazil should diminish these dependence on commodities,
Speaker 1: but should what does Brazil do with the money that
Speaker 1: it generates with the ugly business sector and with the
Speaker 1: commodity Do we invest in education? Do we promote other
Speaker 1: industries and services? Now precisely right, where is it going?
Speaker 1: I mean a good chunk of it. Apparently it has
Speaker 1: been siphoned to to you know, to just subsidize some
Speaker 1: of these so called national champions, right, and I mean
Speaker 1: in massive works and massive corruption that took a lot
Speaker 1: of money from Brazil's economy. I mean, are we in
Speaker 1: the business? Are are we really competitive in some for
Speaker 1: example the auto industry, which is to be very, very
Speaker 1: big in Brazil. Can we do this better than Mexico
Speaker 1: for example? Big question? I honestly don't know the answer.
Speaker 1: But is this work? We want to be competitive for
Speaker 1: example in Brazil? I mean and again I mean do
Speaker 1: we Why don't we invest more in bio technology? Why
Speaker 1: don't we invest more in software and services? With with
Speaker 1: the society so so large and diverse as Brazil society
Speaker 1: with so many large cities in Brazil, do people own
Speaker 1: their houses? Do they? Again? Do they go to school
Speaker 1: and high school and universities? And not nearly as much
Speaker 1: as a country the size of Brazil and with the
Speaker 1: the overall GDP that the country processes. No, this is
Speaker 1: one of the world's stands largest economies, you know, over
Speaker 1: three in dollars GDP? Why is Brazil not richer right
Speaker 1: or wealthier in a certain way? Before we wrap this up,
Speaker 1: I'm just dying to have you remind our listeners what
Speaker 1: is car wash? How did this investigation get to be
Speaker 1: called car wash? Now? I've actually been to the gas
Speaker 1: station that where all this action supposedly unfolded. It's next
Speaker 1: to a steakhouse, but there's not actually a car wash there.
Speaker 1: Help us out with them. It's a bit of a mystery,
Speaker 1: to be honest with you. Yes, I mean the name
Speaker 1: just stuck and stayed. But it relates to this gas
Speaker 1: It relates to the gas station in Brazili where some
Speaker 1: of these people will take you in a car and
Speaker 1: uh and give you know, all these bags of money
Speaker 1: and you know, as part of these kickback scheme. And
Speaker 1: then one day someone also said that, you know, where
Speaker 1: are you going on, I'm just going to the car wash.
Speaker 1: So but there's it's all kind of urban legend or
Speaker 1: lore and on how the name kind of came to
Speaker 1: be and then now it really stuck, uh and it
Speaker 1: became car wash. Let me finish with a question that's
Speaker 1: on my mind of at what point does this become
Speaker 1: a danger to democracy itself in Brazil all these corruption
Speaker 1: investigations too. Is the country going to backslide into military rules?
Speaker 1: There a possibility of electing uh, somebody who's a real
Speaker 1: you know, more authoritarian than the current system provides, or
Speaker 1: or does Brazil have a fairly strong system kind of
Speaker 1: parliamentary system at its core that that will afford such protections.
Speaker 1: I do think that from from the risks that you
Speaker 1: are raised here, the one that is potentially, uh you know,
Speaker 1: with with more of a chance of taking places, is
Speaker 1: that we could potentially choose a maverick or a very outsider.
Speaker 1: I wouldn't say an authoritarian, because the checks and balances
Speaker 1: now in Brazil constitution will prevent a lot of things
Speaker 1: from happening, for example, But it's just a very populist guy,
Speaker 1: right or woman who could potentially again, I mean, I'm
Speaker 1: going to like myself and I'm going to do this.
Speaker 1: I'm going to hunt everybody down. I'm going to fix
Speaker 1: all this by taking money from here and distributing. So,
Speaker 1: I mean, the disenchantment with the political class and the
Speaker 1: political establishment in Brazil is a reality. So so we
Speaker 1: are prone now from an outsider to come in and
Speaker 1: potentially sweep the election, someone with completely unprepared to be
Speaker 1: sitting at the top place, which, by the way, it's
Speaker 1: happening elsewhere in the globe right now, so as pert
Speaker 1: the democracy and military and the army on the street. Again,
Speaker 1: it's it's just not the conditions in Brazil right now.
Speaker 1: It isn't people are not going that way. They're not
Speaker 1: saying only the military can solve this or at least,
Speaker 1: you know, in a in a consistent form. Brazilians are
Speaker 1: very attached now to the democratic process, and it will
Speaker 1: be really difficult for the society to backslide to that
Speaker 1: degree that they would, uh, you know, endorse in favor
Speaker 1: you know, such such type of regime. And honestly, not
Speaker 1: even the army wants that. And and and we don't
Speaker 1: have a system of armed forces in Brazil organized to
Speaker 1: take over the country even if they wanted, for example,
Speaker 1: who wants a shrinking economy on their hands? Precisely, Viviani,
Speaker 1: great to talk to you. And as Brazil just struggles
Speaker 1: in this thicket of political and economic chaos, we're probably
Speaker 1: going to come back to again. Thank you. Then, you know,
Speaker 1: I thought the points Scott that Viviani made at the
Speaker 1: end about the army remaining in its barracks is a
Speaker 1: really critical one. I'm so glad you asked that. That's
Speaker 1: kind of the key point in the end. You know,
Speaker 1: we've we've seen some other emerging markets actually go back
Speaker 1: from democracy into military rule, or at least the one
Speaker 1: on my mind for example, is is Thailand, so they're
Speaker 1: you know, they're still being ruled by the military several
Speaker 1: years into into that regime. You know, it's a it's
Speaker 1: a really fascinating situation and with all the populism and
Speaker 1: new leaders around the world, something to keep an eye on.
Speaker 1: This actual gas station is a source of endless fascination
Speaker 1: for me. There is no car wash there, but I
Speaker 1: will say this, Scott. It is a massive gas station
Speaker 1: and at night it's bathed in a bright, bright white light.
Speaker 1: I mean, there is plenty of scope for stuff to
Speaker 1: go on at this gas station because it's vast. It's massive,
Speaker 1: makes you wonder right. Benchmark will be back next week
Speaker 1: and until then, you can find us on the Bloomberg terminal,
Speaker 1: Bloomberg dot com, or Bloomberg app, as well as on
Speaker 1: Apple podcast, Pocketcasts, and Stitcher. While you're there, take a
Speaker 1: minute to rate and review the show so more listeners
Speaker 1: can find us and let us know what you thought
Speaker 1: of the show. You can follow me on Twitter at
Speaker 1: Scott Landman Dan you are at Moss Underscore Echo and
Speaker 1: Viv You are at I Am at viv Underscore Rod thirteen.
Speaker 1: Benchmark is produced by Sarah Patterson and the head of
Speaker 1: Bloomberg Podcast is Alec McCabe. Thanks for listening, See you
Speaker 1: next time.