Generals remain ultimate power brokers in Latin America

. Nov 11, 2019
chile pinera latin america To declare a state of emergency in Chile, Sebastián Piñera surrounded himself with members of the military. Photo: Office of the Chilean Presidency

Good morning! We’re covering the aftermath of Lula being released from prison. Evo Morales’s resignation shows how much civilian leaders can’t survive without the backing of generals in Latin America. (This newsletter is for platinum and gold subscribers only. Become one now!)

A dangerous game

Evo Morales resigned as president of Bolivia after almost 14 years in power. The move caps three weeks of tension, following a contested presidential election. Mr. Morales had won a fourth consecutive term at the polls, but accusations of fraud piled up—confirmed by the Organization of American States on Sunday. 

Cornered, the president offered to call a new election, but this wasn’t enough for the country’s military elite. Hours later, the head of the Bolivian Armed Forces issued an address to the nation “suggesting” that Mr. Morales resign.

Why it matters. Mr. Morales was pushed out after losing support from the military. That underlines a dangerous phenomenon in many South American countries: they are democracies in name, but leaders are only truly legitimized by the backing of generals. It reopens many scars, in a region where military dictatorships were once the norm.

Examples. Here are some examples of leaders using the Armed Forces as a legitimizing force:

  • Chile. As violent protests erupt, President Sebástian Piñera addressed the nation flanked by officers in military fatigues;
  • Ecuador. President Lenin Moreno declared a national state of exception due to protests against the elimination of fuel subsidies—with generals standing next to him;
  • Venezuela. Despite full-on social and economic collapse, Venezuela’s dictatorial leader Nicolás Maduro is only able to cling onto power thanks to the backing of the Armed Forces;
  • Peru. Congress recently tried to oust President Martín Vizcarra—who appeared on national television alongside military officers, saying he wouldn’t give in to the pressure. He won the tug of war;
  • Bolivia. Before losing support from the Armed Forces, Mr. Morales gave a speech urging the military to maintain order.

And in Brazil? Throughout Brazilian history, the Armed Forces have been highly political. They participated in every single rupture with the established order—from the Proclamation of the Republic, the Vargas dictatorship in 1930, to the military coup in 1964. Since leaving power in 1985, the Armed Forces have retreated to the barracks. But the conservative wave that elected President Jair Bolsonaro (himself a former Army captain) brought many high-ranked officers into government positions.

No soul searching. After resigning on the request of the military, Mr. Morales used a line that has become common among cornered left-wing leaders in South America. He said: “My sin is to be a labor leader, it is to be indigenous.” He did not, however, reflect on matters of electoral fraud. In Brazil, Lula pulled a similar move when he was convicted, saying his only crime was caring for Brazil’s poor.

Lula is back in the political game

Lula speaks to supporters. Photo: Paulo Pinto/FP

On Friday, former President Luiz Inácio Lula da Silva was released from his prison cell in Curitiba, after 580 days of incarceration.

</p> <p><strong>Why it matters. </strong>The most popular politician in Brazilian history is back in the political arena—and, as he recently said himself, Lula leaves prison more radicalized and ready to lead the opposition against President Jair Bolsonaro.</p> <p><strong>Speech.</strong> Lula spoke to supporters in Curitiba moments after being released, and on Saturday, in front of the metalworkers&#8217; union he once led in the 1970s. On both occasions, he lashed out at what he called the &#8220;rotten group&#8221; of prosecutors trying to criminalize the left (a reference to Operation Car Wash), and called President Jair Bolsonaro into the ring. On Saturday, his main target was Economy Minister Paulo Guedes. Here are the main takes from his first speeches out of jail:</p> <ul><li><strong>Guedes.</strong> Lula called the Economy minister a &#8220;crusher of dreams,&#8221; and the leader of a project to impoverish Brazilians. The former president went after policies to reduce labor rights and said Mr. Guedes wants to implement in Brazil an economic order that eventually pushed Chile into its current state of turmoil—with daily violent protests.</li><li><strong>Diplomacy.</strong> Lula also criticized President Bolsonaro for associating himself with Saudi Arabia, mentioning Crown Prince Mohammed bin Salman&#8217;s involvement in the murder of journalist Jamaal Khashoggi. While this is a valid criticism, it is worth remembering that Lula had no problems cozying up with questionable foreign regimes in the past, such as the late Libyan dictator Muammar al-Gaddafi.</li><li><strong>Speaking the language of the people.</strong> If there&#8217;s one thing that Lula does better than any other politician in Brazil (and potentially the world) it is breaking down any topic and translating it into terms that will be relatable to regular citizens. When talking about Brazil&#8217;s high bank spreads, he said that the low benchmark interest rates still haven&#8217;t had an impact on families borrowing money to buy furniture in installments at <a href="">Casas Bahia</a>, a popular home appliances and furniture store in Brazil.</li></ul> <p><strong>Limited action.</strong> Lula remains the most charismatic leader in the country. But the practical effect of his rhetoric should be limited in preventing a Congress which is keen on approving liberal reforms. Even before his release, the left has tried—to no avail—to block projects such as the soon-to-be ratified pension reform.</p> <p><strong>Radicalization.</strong> Jair Bolsonaro&#8217;s reaction to Lula&#8217;s release has been timid. But we should expect both sides to radicalize further in the near future.&nbsp;</p> <p><strong>Lula&#8217;s status.</strong> <a href="">Lula is free</a>—but his conviction has not been annulled. This means that he remains ineligible for public office. Since creating the Workers&#8217; Party in the early 1980s, Lula has crushed every possibility of a new leader emerging. Will he now pass on the torch? The future of his party might depend on precisely this, as—despite his popularity—Lula is also disliked by a sizeable portion of the electorate.</p> <hr class="wp-block-separator"/> <h2>Markets</h2> <p>Brazilian markets were down on Friday with the news of Lula&#8217;s release from prison. Experts heard by <strong>The Brazilian Report</strong> say the news sparked fears of a fiercer opposition against President Bolsonaro&#8217;s reformist agenda—as well as of lingering legal uncertainty. One analyst, though, said Lula will have limited powers to block reforms, and &#8220;won&#8217;t change companies&#8217; bottom line.&#8221; Q3 earnings and developments of the U.S.-China trade war will play a bigger role in how stocks perform in the coming weeks.</p> <p style="text-align:center"><strong><em>Natália Scalzaretto</em></strong></p> <hr class="wp-block-separator"/> <h2>&#8220;Endangered&#8221; municipalities that could no longer exist</h2> <p>According to Economy Minister Paulo Guedes&#8217; <a href="">new economic plan</a> (more on that below), municipalities with fewer than 5,000 residents and which are unable to finance themselves (with less than 10 percent of their revenue coming from local taxes) would be merged with neighboring cities. That would eliminate at least 20,000 public-service jobs. We mapped the cities which could be affected.</p> <div class="flourish-embed" data-src="visualisation/905052"></div><script src=""></script> <hr class="wp-block-separator"/> <h2>Looking ahead</h2> <p><strong>BRICS.</strong> On Wednesday and Thursday, Brazil hosts the 11th BRICS Summit. This edition&#8217;s theme is cooperation on science, technology, and innovation. Brazil, however, is expected to try evoking a controversial subject: Venezuela. That could sour the meeting, as Brazil is the only BRICS nation to recognize opposition leader Juan Guaidó as the legitimate Venezuelan president—all others back Nicolás Maduro. The ousting of Bolivian President Evo Morales could also be a topic for discussion. President Bolsonaro will also have bilateral meetings with the leaders of Russia, India, China, and South Africa.&nbsp;</p> <p><strong>Congress.</strong> On Thursday, Supreme Court justices disallowed prison sentences to be carried out before all appeals are exhausted, saying such a measure is forbidden by the Constitution. Less than 24 hours later, conservative congressional leaders proposed changing the Constitution to allow arrests after one failed appeal. The House&#8217;s Constitution and Justice Committee could vote on this bill today. If approved, it would still have to be analyzed by a special committee and be approved by 60 percent of lawmakers in two rounds (and in both congressional houses). Some legal scholars say the new rules would be applied to ongoing cases (Lula&#8217;s included), but that matter would certainly end up in the Supreme Court.</p> <p><strong>Pension reform.</strong> The new rules for Brazil&#8217;s pension system have been approved by Congress, but not yet enacted. Senate President Davi Alcolumbre scheduled a ceremony for this purpose on Tuesday, gathering members of the Senate and House. The reform establishes a new minimum retirement age—62 for women and 65 for men.</p> <p><strong>More reforms.</strong> The government will continue sending reform proposals to Congress. On the docket this week are the administrative reform (an overhaul of Brazil&#8217;s public service), and a bill to &#8220;fast-track&#8221; privatizations—by allowing the government to sell off assets without Congress needing to approve it.</p> <hr class="wp-block-separator"/> <h2>In case you missed it</h2> <p><strong>Economic plan.</strong> Economy Minister Paulo Guedes presented last week the boldest economic plan Brazil has seen in the past 30 years. It includes halving federal tax breaks, enforcing stricter austerity rules, and—as mentioned above—the &#8220;extinction&#8221; of nearly one-fifth of Brazilian municipalities (which would merge with nearby cities). But Brazil will hold municipal elections next year, and it&#8217;s unlikely that members of Congress will be ready to jeopardize local support in the name of austerity. Moreover, by freezing the minimum wage until 2021, the government risks losing popularity between now and 2022, when President Jair Bolsonaro will run for re-election.&nbsp;</p> <p><strong>Oil and gas.</strong> Brazil&#8217;s much-anticipated &#8220;mega&#8221; oil auction was a political flop. The government had bigged up expected revenue of BRL 106 billion, but sales only generated BRL 69.96 billion—of which 90 percent came from Petrobras. China&#8217;s CNODC and CNOOC were the only foreign bidders (reportedly after President Bolsonaro asked Chinese President Xi Jinping for help). Experts say the cause for the flop is the &#8220;production sharing&#8221; exploitation model created in 2010 for the pre-salt layer. We explain:</p> <ul><li><strong>Concessions.</strong> This used to be the model used in Brazil. In this system, the highest bidder takes exploitation rights. It is up to the market to create competition around the reserves.</li><li><strong>Production Sharing.</strong> In this model, the government establishes a fixed value for the contract—called a &#8220;signing bonus.&#8221; The key criteria here is the percentage of produced oil a company will share with the Brazilian government. Instead of charging an entry fee, the country will collect throughout the term of the project. This system is mainly used in African countries and Venezuela; with growing political risk in Latin America, the system has scared off investors.</li></ul> <p><strong>Diplomacy.</strong> For the first time in 27 years, Brazil voted against the UN&#8217;s annual resolution to condemn the U.S.&#8217; economic blockade on Cuba. Only Brazil and Israel (and the U.S. itself) voted against, with several allies of the White House abstaining or voting in favor. The move came after pressure from the U.S. State Department on Brazil&#8217;s Foreign Affairs Ministry, and it is unlikely that the country will receive any favor in return from the U.S.</p> <p><strong>Mining. </strong>Mines and Energy Minister Bento Albuquerque has confirmed the government intends to regulate mining activities on protected indigenous lands. In fact, the department is expected to issue a bill to this extent in the coming weeks. From the beginning of his election campaign until today, President Jair Bolsonaro has spoken of his desire to make use of the &#8220;wealth and riches&#8221; underneath Brazil&#8217;s soil, even in indigenous areas, which make up 13.8 percent of the country&#8217;s area and 23 percent of the Amazon region.</p> <p><strong>Poverty.</strong> Since the beginning of the economic crisis in 2014, an extra 4.5 million Brazilians have fallen below the poverty line, taking the total population in these conditions up to 13.5 million. The World Bank defines the line of extreme poverty as when people live on less than USD 1.90 per day—translating into roughly BRL 145 per month. The minimum monthly wage in the country for 2019 stands at BRL 998.

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