The Aftermath of President Bolsonaro's Visit to Washington and Prospects for Economic Reform

President Jair Bolsonaro wrapped up his first official visit to Washington as president yesterday, as his government looks to fulfill its promise of strengthening relations with the United States. Yet one of the most promising areas of bilateral dialogue—economic and commercial relations, including greater U.S. investment in Brazil—will depend heavily on the new government’s capacity to deliver much-needed reforms at home, particularly the approval of meaningful pension reform in the Brazilian National Congress. Moreover, despite the show of friendship between President Bolsonaro and President Trump in the White House Rose Garden, substantial distance remains between the two countries on key issues, including China and Venezuela. 

The day after President Bolsonaros’ visit to Washington, experts examined prospects for the Brazilian economy, the current political environment, and Brazil-U.S. relations, three months into the new administration’s tenure. 

Selected Quotes

Anna Prusa

“We know that President Trump and President Bolsonaro are perhaps unusually aligned in terms of their political styles and positions, and they seemed to get along well together yesterday at the meeting. But many of the proposed areas of cooperation-- the new energy forum, the renewal of the CEO forum, U.S. support for Brazil’s admission to the OECD [Organization for the Economic Cooperation and Development]- all of these depend on Brazil’s capacity to address its domestic challenges.”

Antonio Spilimbergo

“We see Brazil with a thick line [of debt] compared to other emerging markets, and there we make the same point, that we expect two things. First that Brazil is higher than the rest of the EMs [emerging markets]. Second, not only is it high, it is becoming higher and higher over time. So something has to be done very quickly to avoid an unsustainable situation.”

“Brazil spends much more than its demographic would imply. So it spends as much of a share of GDP as Germany, but with a population structure which is much younger--and this is a problem. Compounded with the fact that a lot of this is, as I motivated before, linked with the constitution and with this earmarking, this makes the issue very complicated.”

"What is most important, the key message and I think this is very important and has not been appreciated enough: Not only do you need to contain public pensions, but on top, you need to do a lot of other fiscal measures. So pension reform is a necessary, but not sufficient condition to reset the table. This, I think, has not entered the political debate in Brazil yet, and I think it’s an important measure to.”

“Unfortunately Brazil has one of the lower public investment rates in the region---As you can see some countries like Bolivia and Ecuador are doing a lot of public investment, 30%, and hav[e] a good wage bill. Brazil is doing the opposite, it has a very large wage bill, 13%, and very little investment. And this a problem for the future.” 

Krishna Srinivasan:

“We all know that trade, not everybody wins, that there’ll be clearly winners and losers when you open up the economy. And one has to recognize that. And, so when you reduce trade barriers, when you reduce tariffs and non-tariff barriers, some industries are going to close down, and some are going to boom.”

"The point here is, in Brazil, just know the news which you heard [during] the past few years, even if you look at data, you look at numbers, you look at perceptions of corruption-- it is very high, especially given its level of development. And again, that has been a clear… this clearly impacted policy uncertainty in Brazil in last few years.”

"You need clear priorities, political leadership. You have a new government in place, one would hope, that gives you the momentum to do things seriously. And you need partnership across all stakeholders. Without, reforms are not likely to succeed. And so time is of the essence, and it’s time to change the gears, and move to high growth trajectory.”

Thiago de Aragão:

"The symbolic approximation between Brazil and the U.S. also sends a message to China that they will have to either review part of their approach and strategy towards Brazil or their current status will start to drain away like sand in the hand".

"The OECD, which is very important for Brazil for many reasons, including the way that investors will look at Brazil from now on, wasn't granted without something heavy. And the new profile that Brazil would have to adopt at the WTO matches directly with a lot of the interests the U.S. has in their bilateral trade with Brazil."

“As soon as the delegation lands in Brasília, Brasília becomes priority number one, two, three, four and five.”

Roberto Simon:

“The bilateral relationship might be summarized as a series of missed opportunities. It was Dilma and Obama until you had Snowden. It was Obama and Lula, then you had Iran and Honduras and what have you. It was Clinton and Fernando Henrique Cardoso, then you had Plan Colombia. These periods [of great love] last for two years, five years max, and then something external, or changing preferences within Brazil, shift the balance back to the norm. […] History is not on Bolsonaro’s side.”

"If the Paulo Guedes agenda does not take off pretty soon, what was discussed here will not deserve a line in future history books."

Nick Zimmerman:

"This concessions-frame is the wrong way to think about the visit from both sides. It is not about who gave more or less, it is about what is being done structurally and institutionally between these two countries in advancing mutual interests, and in a vacuum, each one advancing their own interests."

"A lot was accomplished in a relatively short period of time, both sides should be commended for that. I think there is a framework that is being implemented that could lead to more meaningful and deeper cooperation. I do not think we are there yet and I am not convinced that we will get there."

“I do have a sense that somehow, yet again, it’s going to end up being two ships passing in the night.”

AGENDA

Panel I: The View from the IMF: Boom, Bust, and the Road to Recovery in Brazil 

Antonio Spilimbergo, Assistant Director, Western Hemisphere Department at the IMF and Mission Chief for Brazil 

Krishna Srinivasan, Deputy Director, Western Hemisphere Department at the IMF

Moderator: Anna Prusa, Associate, Brazil Institute

Panel II: Assessment of President Bolsonaro’s Visit to Washington and the Political Environment Back Home

Roberto Simon, Senior Director of Policy, Council of the Americas

Nicholas Zimmerman, Consultant, Macro Advisory Partners

Thiago de Aragão, Partner and Director of Intelligence, Arko Advice

Mauricio Moura, Founder and CEO, IDEIA Big Data

Moderator: Paulo Sotero, Director, Brazil Institute 

Image by AP (Editorial)