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Brazil’s economic challenges are again Lula’s to tackle – this time around they’re more daunting

He faces strong headwinds at home and abroad as his third term as president gets underway.



Bolstering Brazil's economy will be hard if there's a global recession. Mauro Pimentel/AFP via Getty Images

Even when they’re in trouble, Brazilians rarely lose their sense of humor. But in recent years, their joviality has often given way to political division everywhere from social media to the dinner table.

One familiar quip – that Brazil is the country of the future and always will be – has lost its levity as Luiz Inácio Lula da Silva begins his third presidential term. Lula previously led his country from 2003 to 2010. The president, who was sworn in again on Jan. 1, 2023, promised on the campaign trail that Brazil’s future can be like its past again: more prosperous and less polarized.

Having studied Brazil in our economic research, and having lived in the country for several years by birth or by choice, we argue that it will not be easy for Lula to fulfill his economic promises.

Unlike in his first two terms, when domestic and foreign markets helped the economy along, Lula now faces strong headwinds at home and abroad – and that means sound policies are even more important this time around.

Good times, bad times and economic choices

Brazil shot up from the world’s 14th-largest economy in 2003 to the seventh-biggest in 2010, during a boom that largely coincided with Lula’s prior presidency. At the same time, the country’s poverty rate, which the World Bank today pegs at the share of the population living on less than US$3.65 a day, fell sharply, from 26% to 12%.

Brazil exports so many gallons of orange juice, bags of coffee, bushels of wheat and other commodities that it’s serving up the world’s breakfast. Global growth during those years boosted the demand for these commodities as well as for Brazil’s processed goods. Manufacturing exports fueled Brazil’s growth in the decade following the year 2000 for the first time, led by sales of products like steel, car parts and cars, and aircraft made by Embraer.

During these boom years, Lula ran a balanced government budget, held inflation low and kept the Brazilian real’s exchange rate with other currencies under control – macroeconomic policies that he maintained from his predecessor, Fernando Henrique Cardoso. Lula also bundled Cardoso’s popular anti-poverty programs into Bolsa Família, a successful conditional cash transfer program. To remain enrolled and receive the monetary benefits, low-income families had to get their children vaccinated against diseases, keep them in school and meet other requirements.

Cynthia Benedetto, Embraer’s chief financial officer, observed in 2011: “Since my childhood I heard that Brazil is the country of the future,” and then warned, “Now the future has arrived, and I start to fear that it is short.”

She was right. The good times didn’t last.

During the second decade of this century, the prices of many of the commodities that Brazil exports fell or even plummeted. The country experienced two of the worst recessions in its history. In the downturn that lasted from late 2014 to mid-2016, nearly 5 million Brazilians lost their jobs. After a sluggish recovery, the COVID-19 pandemic hit, and 10 million Brazilians became jobless in another big downturn.

Political upheaval

Bad choices made tough and unlucky times worse.

A combination of economic mismanagement, widespread corruption, political turmoil and a global pandemic all contributed to 10 years of backward sliding after a decade of progress.

Lula’s allies, including some in his inner circle, were found to be part of one corruption scheme after another. Lula himself ended up in prison for corruption until Brazil’s Supreme Court declared the case a mistrial because the presiding judge was determined to have been biased.

Brazilians elected Lula’s hand-picked successor, Dilma Rousseff, in the 2010 and 2014 presidential races. She cast aside some of her predecessors’ policies that had buttressed economic stability.

Rousseff ended the central bank’s de facto independence and lowered interest rates in an abrupt turnaround that sparked inflation. She gave up on balancing the budget.

Once corruption was exposed in state-owned oil company Petrobras, the construction industry and at Brazil’s massive state-run development bank, economic activity slowed across the board. Rousseff oversaw one of Brazil’s most severe economic contractions in memory: GDP shrank by 7% and public debt increased 20 percentage points as a share of GDP from 2014 to 2016.

Brazil’s Congress impeached and convicted Rousseff in 2016 for fiscal improprieties. Her vice president, Michel Temer, served out the rest of her term and appointed Lula’s central bank chair, Henrique Meirelles, as minister of finance to help rein in public debt.

Jair Bolsonaro, a vocal admirer of Brazil’s 20th-century military dictatorship, became president in 2019 by riding the wave of widespread sentiment against Lula’s and Rousseff’s Workers’ Party. Bolsonaro prioritized short-term political gain over long-term adjustment, often clashing with his own economic aides and dodging rules meant to curb government spending.

By 2020, Brazil’s economy ranked No. 12 in the world in terms of GDP, and living conditions deteriorated. In 2021, the poverty rate likely hit the highest level in a decade, according to estimates by researchers at IPEA, a government think tank, as well as IBGE, Brazil’s statistics agency.

The pandemic and the social spending fluctuations it brought about have made it hard to accurately track economic trends in recent years. But the numbers suggest that Brazil is close again to where it started the 21st century.

Back to the future

Lula’s economic challenges are daunting, over and above the political crisis after the riots by opposition supporters in Brasília.

First, the economic outlook is gloomy. Inflation has led central banks worldwide to increase interest rates, and the International Monetary Fund forecasts a global slowdown in 2023.

Even if the world still wants Brazil’s coffee, orange juice and cereal from wheat or corn for breakfast, we doubt that foreign demand for Brazil’s exports will bounce back to the levels seen in past boom years.

Global prices for many of the commodities Brazil exports have been sliding downward for the past 15 years. They briefly reached their 2008 peak level again in mid-2022, partly driven by Russia’s invasion of Ukraine and the ensuing global turmoil that drove food prices up.

But the prices of commodities that are particularly important to Brazil, such as soybeans, corn and coffee, are all down significantly from their recent peaks.

During his 2022 campaign, Lula promised to slash taxes on the upper-middle class and increase benefits for the poor while keeping government finances under control.

This arithmetic is feasible in an era of rapid growth, when newly generated wealth can finance public transfers. At times of slow or no growth, like today, it becomes much harder to pull off.

Second, unlike when Lula first took office following a period of fiscal stability, this time he must credibly rebuild much of the fiscal framework.

After boosts to benefits, tax cuts and some unfunded pension commitments to retirees, it’s become hard to balance Brazil’s budget. In response to the crisis in the mid-2010s, Brazil’s Congress passed a spending cap that gradually rises so as to foster slow fiscal adjustment while avoiding harsh austerity. But Bolsonaro essentially got rid of the cap by circumventing it.

One example is the federal government’s obligation to cover court-mandated payments: Bolsonaro delayed the disbursement of 110 billion reais ($21.6 billion), equal to more than 1% of Brazil’s GDP, in 2022. That means the new government has to pay this year’s and some of last year’s bills at the same time.

While Bolsonaro dismissed the severity of COVID-19 when it was spreading uncontrolled through his country, his government did help people cope with its economic fallout by allowing emergency spending that breached Brazil’s spending cap. However, his administration maneuvered to perpetuate the state of emergency and kept spending levels higher than the cap would allow long after Brazilians stopped staying at home for public health reasons.

Third, we expect political divisions, including some within Lula’s administration, to be another obstacle. Different factions on his economic team are likely to be at loggerheads for the foreseeable future because they prefer starkly different policies.

Simone Tebet, the new economic planning minister who is in charge of coordinating spending, has several fiscal conservatives on her team.

Finance Minister Fernando Haddad, in contrast, has appointed undersecretaries known to invariably advocate for more spending. Plans for taxes and spending released to date set a budget surplus of 0.5% of GDP as the new government’s target, primarily financed with more tax collection.

Using budget projections by the International Monetary Fund, we consider those revenue projections overly optimistic.

To be sure, any new government deserves time to prove itself, especially under tough circumstances. But patience is rarer in Brazil than humor – and always has been.

Marc-Andreas Muendler received funding from the National Science Foundation for research using Brazilian data. Marc-Andreas Muendler worked as a consulting researcher for the Brazilian labor ministry and the Brazilian census bureau, and currently works closely with the research department of Brazil's central bank in Sao Paulo on research into firm dynamics.

Carlos Góes was a senior economic adviser at the Executive Office of the President of Brazil (2017-18). He is currently an economics columnist for O Globo, a Brazilian newspaper. He is the founder of Instituto Mercado Popular, a nonpartisan São Paulo-based think tank.

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As We Sell Off Our Strategic Oil Reserves, Ponder This

As We Sell Off Our Strategic Oil Reserves, Ponder This

Authored by Bruce Wilds via Advancing Time blog,

One of Biden’s answers to combating…



As We Sell Off Our Strategic Oil Reserves, Ponder This

Authored by Bruce Wilds via Advancing Time blog,

One of Biden's answers to combating higher gas prices has been to tap into America's oil reserves. While I was never a fan of the U.S. Strategic Petroleum Reserve (SPR) program, it does have a place in our toolbox of weapons. We can use the reserve to keep the country running if outside oil supplies are cut off. Still, considering how out of touch with reality Washington has become, we can only imagine the insane types of services it would deem essential next time an oil shortage occurs.

Sadly, some of these reserves found their way into the export market and ended up in China. We now have proof that the President's son Hunter had a Chinese Communist Party member as his assistant while dealing with the Chinese. Apparently, he played a role in the shipping of American natural gas to China in 2017. It seems the Biden family was promising business associates that they would be rewarded once Biden became president. Biden's actions could be viewed as those of a traitor or at least disqualify him from being President.

The following information was contained in a letter from House Oversight Committee ranking member James Comer, R-Ky. to Treasury Secretary Janet Yellen dated Sept. 20. 

"The President has not only misled the American public about his past foreign business transactions, but he also failed to disclose that he played a critical role in arranging a business deal to sell American natural resources to the Chinese while planning to run for President.”

Joe Biden, Comer said, was a business partner in the arrangement and had office space to work on the deal, and a firm he managed received millions from his Chinese partners ahead of the anticipated venture. While part of what Comer stated had previously been reported in the news, the letter, cited whistleblower testimonies, as well as emails, a corporate PowerPoint presentation, and a screenshot of encrypted messages. These as well as  bank documents that committee Republicans obtained suggest Biden’s knowledge and involvement in the plan dated back to at least 2017.

The big point here is;

  • The Strategic Petroleum Reserve, which was established in 1975 due to the 1973 oil embargo, is now at its lowest level since December 1983.

In December 1975, with memories of gas lines fresh on the minds of Americans following the 1973 OPEC oil embargo, Congress established the Strategic Petroleum Reserve (SPR). It was designed “to reduce the impact of severe energy supply interruptions.” What are the implications of depleting the SPR and is it still important?

The U.S. government began to fill the reserve and it hit its high point in 2010 at around 726.6 million barrels. Since December 1984, this is the first time the level has been lower than 450 million barrels. Draining the SPR has been a powerful tool for the administration in its effort to tame the price of gasoline. It also signaled a "new era" of intervention on the part of the White House. 

This brings front-and-center questions concerning the motivation of those behind this action. One of the implications of Biden's war on high oil prices is that it has short-circuited the fossil investment/supply development process.  Capital expenditures among the five largest oil and gas companies have fallen as the price of oil has come under fire. The current under-investment in this sector is one of the reasons oil prices are likely to take a big jump in a few years. Production from existing wells is expected to rapidly fall.

The Supply Of Oil Is Far More Constant And Inelastic Than Demand

It is important to remember when it comes to oil, the supply is far more constant and inelastic than the demand. This means that it takes time and investment to bring new wells online while demand can rapidly change. This happened during the pandemic when countries locked down and told their populations and told them to stay at home. This resulted in the price of oil temporarily going negative because there was nowhere to store it.

Draining oil from the strategic reserve is a short-sighted and dangerous choice that will impact America's energy security at times of global uncertainty. In an effort to halt inflationary forces, Biden released a huge amount of crude oil from the SPR to artificially suppress fuel prices ahead of the midterm elections. 

To date, Biden has dumped more SPR on the market than all previous presidents combined reducing the reserves to levels not seen since the early 1980s. In spite of how I feel about the inefficiencies of this program, it does serve a vital role. It is difficult to underestimate the importance of a country's ability to rapidly increase its domestic flow of oil. This defensive action protects its economy and adds to its resilience. 

Biden's actions have put the whole country at risk. Critics of his policy pointed out the Strategic Petroleum Reserve was designed for use in an emergency not as a tool to manipulate elections. Another one of Biden's goals may be to bring about higher oil prices to reduce its use and accelerate the use of high-cost green energy.

Either way, Biden's war on oil has not made America's energy policies more efficient or the country stronger.

Tyler Durden Sat, 03/25/2023 - 18:30

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The Disinformation-Industrial Complex Vs Domestic Terror

The Disinformation-Industrial Complex Vs Domestic Terror

Authored by Ben Weingarten via,

Combating disinformation…



The Disinformation-Industrial Complex Vs Domestic Terror

Authored by Ben Weingarten via,

Combating disinformation has been elevated to a national security imperative under the Biden administration, as codified in its first-of-its-kind National Strategy for Countering Domestic Terrorism, published in June 2021.  

That document calls for confronting long-term contributors to domestic terrorism.

In connection therewith, it cites as a key priority “addressing the extreme polarization, fueled by a crisis of disinformation and misinformation often channeled through social media platforms, which can tear Americans apart and lead some to violence.” 

Media literacy specifically is seen as integral to this effort. The strategy adds that: “the Department of Homeland Security and others are either currently funding and implementing or planning evidence–based digital programming, including enhancing media literacy and critical thinking skills, as a mechanism for strengthening user resilience to disinformation and misinformation online for domestic audiences.” 

Previously, the Senate Intelligence Committee suggested, in its report on “Russian Active Measures Campaigns and Interference in the 2016 Election” that a “public initiative—propelled by Federal funding but led in large part by state and local education institutions—focused on building media literacy from an early age would help build long-term resilience to foreign manipulation of our democracy.” 

In June 2022, Democrat Senator Amy Klobuchar introduced the Digital Citizenship and Media Literacy Act, which – citing the Senate Intelligence Committee’s report – would fund a media literacy grant program for state and local education agencies, among other entities. 

NAMLE and Media Literacy Now, both recipients of State Department largesse, endorsed the bill. 

Acknowledging explicitly the link between this federal counter-disinformation push, and the media literacy education push, Media Literacy Now wrote in its latest annual report that ... 

... the federal government is paying greater attention to the national security consequences of media illiteracy.

The Department of Homeland Security is offering grants to organizations to improve media literacy education in communities across the country. Meanwhile, the Department of Defense is incorporating media literacy into standard troop training, and the State Department is funding media literacy efforts abroad.

These trends are important for advocates to be aware of as potential sources of funding as well as for supporting arguments around integrating media literacy into K-12 classrooms. 

When presented with notable examples of narratives corporate media promoted around Trump-Russia collusion, and COVID-19, to justify this counter-disinformation campaign, Media Literacy Now president Erin McNeill said: “These examples are disappointing.”

The antidote, in her view is, “media literacy education because it helps people not only recognize the bias in their news sources and seek out other sources, but also to demand and support better-quality journalism.” (Emphasis McNeill’s)

Tyler Durden Sat, 03/25/2023 - 17:30

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G7 Vs BRICS – Off To The Races

G7 Vs BRICS – Off To The Races

Authored by Scott Ritter via,

An economist digging below the surface of an IMF report has…



G7 Vs BRICS - Off To The Races

Authored by Scott Ritter via,

An economist digging below the surface of an IMF report has found something that should shock the Western bloc out of any false confidence in its unsurpassed global economic clout...

G7 leaders meeting on June 28, 2022, at Schloss Elmau in Krün, Germany. (White House/Adam Schultz)

Last summer, the Group of 7 (G7), a self-anointed forum of nations that view themselves as the most influential economies in the world, gathered at Schloss Elmau, near Garmisch-Partenkirchen, Germany, to hold their annual meeting. Their focus was punishing Russia through additional sanctions, further arming of Ukraine and the containment of China.

At the same time, China hosted, through video conference, a gathering of the BRICS economic forum. Comprised of Brazil, Russia, India, China and South Africa, this collection of nations relegated to the status of so-called developing economies focused on strengthening economic bonds, international economic development and how to address what they collectively deemed the counter-productive policies of the G7.

In early 2020, Russian Deputy Foreign Minister Sergei Ryabkov had predicted that, based upon purchasing power parity, or PPP, calculations projected by the International Monetary Fund, BRICS would overtake the G7 sometime later that year in terms of percentage of the global total.

(A nation’s gross domestic product at purchasing power parity, or PPP, exchange rates is the sum value of all goods and services produced in the country valued at prices prevailing in the United States and is a more accurate reflection of comparative economic strength than simple GDP calculations.)

Then the pandemic hit and the global economic reset that followed made the IMF projections moot. The world became singularly focused on recovering from the pandemic and, later, managing the fallout from the West’s massive sanctioning of Russia following that nation’s invasion of Ukraine in February 2022.

The G7 failed to heed the economic challenge from BRICS, and instead focused on solidifying its defense of the “rules based international order” that had become the mantra of the administration of U.S. President Joe Biden.


Since the Russian invasion of Ukraine, an ideological divide that has gripped the world, with one side (led by the G7) condemning the invasion and seeking to punish Russia economically, and the other (led by BRICS) taking a more nuanced stance by neither supporting the Russian action nor joining in on the sanctions. This has created a intellectual vacuum when it comes to assessing the true state of play in global economic affairs.

U.S. President Joe Biden in virtual call with G7 leaders and Ukrainian President Volodymyr Zelenskyy, Feb. 24. (White House/Adam Schultz)

It is now widely accepted that the U.S. and its G7 partners miscalculated both the impact sanctions would have on the Russian economy, as well as the blowback that would hit the West.

Angus King, the Independent senator from Maine, recently observed that he remembers

“when this started a year ago, all the talk was the sanctions are going to cripple Russia. They’re going to be just out of business and riots in the street absolutely hasn’t worked …[w]ere they the wrong sanctions? Were they not applied well? Did we underestimate the Russian capacity to circumvent them? Why have the sanctions regime not played a bigger part in this conflict?”

It should be noted that the IMF calculated that the Russian economy, as a result of these sanctions, would contract by at least 8 percent. The real number was 2 percent and the Russian economy — despite sanctions — is expected to grow in 2023 and beyond.

This kind of miscalculation has permeated Western thinking about the global economy and the respective roles played by the G7 and BRICS. In October 2022, the IMF published its annual World Economic Outlook (WEO), with a focus on traditional GDP calculations. Mainstream economic analysts, accordingly, were comforted that — despite the political challenge put forward by BRICS in the summer of 2022 — the IMF was calculating that the G7 still held strong as the leading global economic bloc.

In January 2023 the IMF published an update to the October 2022 WEO,  reinforcing the strong position of the G7.  According to Pierre-Olivier Gourinchas, the IMF’s chief economist, the “balance of risks to the outlook remains tilted to the downside but is less skewed toward adverse outcomes than in the October WEO.”

This positive hint prevented mainstream Western economic analysts from digging deeper into the data contained in the update. I can personally attest to the reluctance of conservative editors trying to draw current relevance from “old data.”

Fortunately, there are other economic analysts, such as Richard Dias of Acorn Macro Consulting, a self-described “boutique macroeconomic research firm employing a top-down approach to the analysis of the global economy and financial markets.”

Rather than accept the IMF’s rosy outlook as gospel, Dias did what analysts are supposed to do — dig through the data and extract relevant conclusions.

After rooting through the IMF’s World Economic Outlook Data Base, Dias conducted a comparative analysis of the percentage of global GDP adjusted for PPP between the G7 and BRICS, and made a surprising discovery: BRICS had surpassed the G7.

This was not a projection, but rather a statement of accomplished fact:

BRICS was responsible for 31.5 percent of the PPP-adjusted global GDP, while the G7 provided 30.7 percent.

Making matters worse for the G7, the trends projected showed that the gap between the two economic blocs would only widen going forward.

The reasons for this accelerated accumulation of global economic clout on the part of BRICS can be linked to three primary factors:

  • residual fallout from the Covid-19 pandemic,

  • blowback from the sanctioning of Russia by the G7 nations in the aftermath of the Russian invasion of Ukraine and a growing resentment among the developing economies of the world to G7 economic policies and

  • priorities which are perceived as being rooted more in post-colonial arrogance than a genuine desire to assist in helping nations grow their own economic potential. 

Growth Disparities

It is true that BRICS and G7 economic clout is heavily influenced by the economies of China and the U.S., respectively. But one cannot discount the relative economic trajectories of the other member states of these economic forums. While the economic outlook for most of the BRICS countries points to strong growth in the coming years, the G7 nations, in a large part because of the self-inflicted wound that is the current sanctioning of Russia, are seeing slow growth or, in the case of the U.K., negative growth, with little prospect of reversing this trend.

Moreover, while G7 membership remains static, BRICS is growing, with Argentina and Iran having submitted applications, and other major regional economic powers, such as Saudi Arabia, Turkey and Egypt, expressing an interest in joining. Making this potential expansion even more explosive is the recent Chinese diplomatic achievement in normalizing relations between Iran and Saudia Arabia.

Diminishing prospects for the continued global domination by the U.S. dollar, combined with the economic potential of the trans-Eurasian economic union being promoted by Russia and China, put the G7 and BRICS on opposing trajectories. BRICS should overtake the G7 in terms of actual GDP, and not just PPP, in the coming years.

But don’t hold your breath waiting for mainstream economic analysts to reach this conclusion. Thankfully, there are outliers such as Richard Dias and Acorn Macro Consulting who seek to find new meaning from old data. 

Tyler Durden Sat, 03/25/2023 - 07:00

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