That Lula has obtained, albeit with a tight margin, the presidency of Brazil for the third time is not a surprise because it reflects two recurring issues in the rest of the region: since the pandemic, the ruling parties have been losing at the polls and parity in the count end implies political polarization. However, in the case of the great neighbor, the economy seemed to be on the sidelines of the great electoral discussion. Perhaps because the numbers that the Bolsonaro government has been showing show that economic activity has already finished recovering (growth of 3.5% of GDP is projected for this year) and inflation, the other international scourge, after a peak in 7.5% annual (in the first semester) slowed down. For the third consecutive month, in September the CPI fell again and gave way to deflation.
Mirror. The relative good performance of the Brazilian economy contrasts with the Argentine imbalances. Locally, in addition to inflation, with monthly values similar to the neighbor’s year-on-year values, The other issue with a strong contrast is the foreign exchange aspect. It is estimated that as of October the Central Bank of Brazil ended up accumulating US$370,000 million, almost 10 times more than what the BCRA writes down, but with many doubts as to how much is actually counted as available (what is known as net liquid reserves) to be able to face any currency run. Instead, Brazil took advantage of the tailwind of the commodities boom to encourage its agro-industrial production to become a world food power, despite the fact that this sector does not have the level of competitiveness or refinement of the two leading countries in the international market: United States and… Argentina.
For the international analyst Jorge Castro, there are clear political factors that mark the restrictions that Lula will face at the beginning of his administration and will prevent him from having the freedom of action to make a 180-degree turn in Bolsonaro’s economic policy. In the first place, it will not control the two chambers of Congress, so it will mark a limit to the traditional political line of the PT and will also have a strong monitoring of the richest states and productive enclaves of Brazil, protagonists of the strong growth from the sector more dynamic, that of agribusiness. “Brazil is not only a large country: it is also the largest integrated industrial system in Latin America. But this industrial system is designed for the domestic market, incapable of competing internationally, which is why the advantage of agricultural production was enhanced, turning Brazil into a global food power.“, Explain.
Castro does not believe that there will be changes in the relationship between Argentina and Brazil because the complementarity of both economies is very high. Brazil is the main industrial market for Argentina and that is immovable. In addition, the Argentine market is relevant for Brazil because it is the only market in which Brazilian exports have an advantage over the rest of the competitors due to the protection of Mercosur. “Argentina and Brazil are two different worlds. With its own systems and different routes. Argentina is the country in the region with the greatest political participation and has a bias in its identity that differentiates it from any other political process but does not prevent greater complementarity with the Brazilian economy for mutual benefit.”, he concludes.
close ties. For the immediate future of the Argentine economy, the economic policy decisions of the incoming Lula government are not neutral. In the first place, due to the size of the neighboring productive apparatus and also the magnitude of its market: US$1.35 billion vs. US$420,000 million (according to the World Bank) and 210 million inhabitants vs. 47 million (according to estimates and the latest national census). The consultant and specialist Marcelo Elizondo points out that the integration of various sectors goes far beyond trade. The trade imbalance between the two countries (it was -2,328 million for Argentina in the first ten months of the year) forced it to continue with safeguards and traps of all kinds, which “for now are patiently tolerated by Lula’s economic team, but We don’t know for how much longer.” ANDn a trade bloc that is one of the most closed in the world (with total exports of 15% of GDP), only comparable to NAFTA but that has a great internal opening thanks to the unique dimension of the North American market.
In his opinion, Lula is an authority that has a clear internationalist vocation. Bolsonaro, on the other hand, is a leader in the style of the ’90s: he opens the economy by lowering tariffs and that’s it. In addition, his personality generates dislike and makes it difficult to negotiate with him. “Lula spoke the same day of the victory and referred to the European Union and the United States as the next objectives of improving trade policy. Therefore, I think he will want to improve his relationship with the other members of Mercosur. After all, Lula is a trade unionist and therefore a convinced negotiator. But from there to significant changes it will be a long and difficult road.“, he concludes.
In his coalition, Lula has the historical line of the PT, a lot of centrism in those who were allied, like his deputy, and is always supported by a pragmatic technocratic component. As Brazil will be very divided and Lula will soon be conditioned, I don’t know if the rest of his partners will have the necessary tolerance with a country like Argentina that hinders inter-bloc trade, delays trade opening, puts traps and delays the exchange rate. Finally, I do not believe that Argentina, with elections under way, has the priority of putting strategic changes on the agenda to re-improve Mercosur.
Fine tuning. The Economist Camilo Tiscorniadirector of C&T Economic Advisors, the ability of the next government in Brasilia to act prudently and not scare away investment is key due to the international monetary context. With a super dollar and the depreciation of the rest of the strong currencies (yen and euro), a drop in the Real would add more pressure to the peso. “Lula in the past proved to be quite rational in economic matters. Now he has a more moderate speech and it remains to be seen who will be his Economy Minister, but in any case he himself understands that the macroeconomy cannot be broken permanently, even with a greater inclination to increase public spending without excesses.or”, estimate.
According to the estimate of the consultant Echo Go, the parity of the evolution of the GDPs of both countries is notable, although it shows greater volatility in the Argentine case (including the large drop and subsequent recovery due to the pandemic). “With the change of government there should be greater harmony, facilitating trade and promoting greater activity, but the truth is that both economies are closed and there are many limitations on both sides for trade”, remarks the associate director of him, Sebastian Menescaldi.
Also, Brazil is still in a context of consolidation, so it is not expected to drive much of the economic activity in Argentina, and to this is added that the wheat harvest (one of the main export products) will fall a lot this year due to the drought. For now, the prayers should not be placed on a Brazilian miracle but rather that climate change does not disturb the local agricultural export boom too much.
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