The Biggest Risks and Opportunities in Latin America — ft. Monica de Bolle

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Today's number, 37.

That's the percentage of the British public that says they swear every day more than any other country.

I don't have a joke about that, Ed, because I am so excited.

True story.

Last week, Profit Markets was two of the three most listened-to episodes in the world

in business podcasts.

And what is really frustrating was that both those episodes, I wasn't on either of them.

So, Ed, look,

you are progressing to a big-time person with managerial responsibilities.

You're now overseeing people.

And I just want to give you a pro tip about once an organization grows and there's a lot of people, the first thing you need to do, Ed,

is you need to call in all hands.

And you need to announce and say you're sharing something with them quite vulnerable, but that you've had, you were in a terrible accident.

You were in a terrible accident.

And some of your emotional inhibitors have been damaged, and there's going to be some locker room talk

and some inappropriate touching, but you trust they'll understand your journey back.

Listen to me.

Markets are bigger than us.

What you have here is a structural change in the wealth distribution.

Cash is trash.

Stocks look pretty attractive.

Something's going to break.

Forget about it.

I don't know why.

I find that so funny.

It's got nothing to do with bread.

Nothing to do with...

But that's your managerial advice for me.

My inhibition sensors were damaging a terrible accident.

There's going to be some inappropriate touching.

I appreciate your patience on my journey back.

I got to do that in all hands just to see how Catherine responds.

Yeah, you should try that and see how that goes.

Yeah.

What's going on, Ed?

What's going on with you?

Not too much.

I'm just sort of fascinated by what's going on behind you.

You've got like a dark, stormy,

what is that?

A painting?

Where are you and what's going on?

I'm in Aspen, and

the guy who saves my bacon is Drew came back here a couple of days early, rented a...

three-bedroom apartment and there's there's audio equipment everywhere and the last time i was here i was on that white dudes for a Harris thing.

Was that exactly a year ago?

I guess that was a year ago.

And I looked so, I looked even, I looked my, I looked so ugly, I looked like me.

I looked, it was, I looked my age and my natural lighting came through.

And I said to him, boss, you gotta, you gotta, you, look what we're working with here.

And so he set up great lighting and he found he and Catherine designed this little backdrop.

It feels to me like a little bit like too many hits of acid.

I think it looks great.

It looks very, you look very, very professorial.

There you go.

Very sort of Timothy Leary or something.

This is all Drew, but yeah, I'm in, I'm in Aspen.

Where are you?

I am in New York, living the dream, recording some podcasts.

Are you doing anything with your girlfriend this summer?

Are you going anywhere?

Taking her anywhere?

Yeah, we're going to go to Sardinia.

Oh, smell you.

Someone's making a little too much cabbage.

Someone's a little overpaid.

All right, Ed, let's get to the interview.

This is very exciting.

Okay, here's our conversation with Monica DeBole, Senior Fellow at the Peterson Institute for International Economics and the host of Policy for the Planet.

Monica, thank you so much for joining us for the very first time on Prof G Markets.

Thank you for having me.

It's a pleasure to be with you.

So you are a macroeconomist.

You are a global policy expert, a professor, many things, but you are also an expert on Brazil.

And Brazil has been in the news a lot recently.

As most of us know, Trump has threatened this 50% tariff on Brazil, which has brought up a lot of questions for us about what does this do to Brazil?

What is going on in Brazil?

What is Brazil's relationship with the United States, et cetera, et cetera.

So that is why we're very happy to have you.

And we thought that now would be a great time to get your take on things.

So we really appreciate you being here.

Thank you.

It's my pleasure to be here.

And I'll just say that I'm also Brazilian.

Yes.

And I was in Brazil when they announced the tariffs.

Well maybe let's start with there.

I mean let's just go over what is the tariff situation.

You know Trump has threatened this 50% tariff on Brazil.

He said it's because of a quote witch hunt against the former president Bolsonaro.

Just for those of us who have like no idea what any of this means or what the situation is.

Give us the rundown.

What is the political situation in Brazil?

And how did people react when you were over there and this tariff news hit?

So in a nutshell, the situation with former President Jair Bolsonaro is that he's been under investigation and now his trial is actually upcoming in a few days or in a few weeks perhaps

over his involvement in the 2023 January 8th uprisings against the Brazilian Congress, the Brazilian Supreme Court, and also the presidency.

There was an insurrection on January 8th

in Brazil, not unlike what happened in the United States on January 6th, two years before that.

And

Bolsonaro was heavily involved.

I mean, it's not even an allegation anymore at this point, because the investigations have shown that he was clearly involved in organizing and orchestrating a part of this insurrection.

And that is what's happening at the moment is that these investigations have now come to a close, and it's at the point where he's going to be tried, and he will likely be,

well,

not just indicted, but convicted.

And we will have to see what kind of penalties the Brazilian judicial system is going to impose.

But nonetheless, that's the situation.

It took everyone by surprise when this announcement came from the White House,

the tariff announcement, specifically linking it to the investigations concerning former President Bolsonaro and what is currently going on in Brazil, which pertains uniquely to Brazil, one should say.

Why do you think Trump cares about this?

Why would this political situation in Brazil cause this outburst from the president over here?

And why is he using tariffs as a way to sort of punish that behavior?

I know we can't really get inside of his head, but generally speaking, like, how would one justify this?

I cannot justify it

under any

reasonable logic.

I mean, in a sense, what is currently happening in Brazil is Brazil's business.

What is currently happening with regard to former President Jair Bolsonaro is Brazil's business and Brazil's business alone.

It has no implications whatsoever for the United States or for the U.S.

economy for that matter.

So, it really does not stand to reason.

You know, why would the U.S.

do something like this?

It doesn't make any sense.

And it makes no sense from an economic point of view because Brazil and the United States have always had trade relations.

They've always been pretty good.

There's never been much of a much of anything that's gone on between the two countries.

Some, you know, skirmishes here and there, but

nothing serious over decades and decades of involvement between the two countries.

So this decision or this announcement really was taken with a lot of surprise by Brazilian authorities, the media, everybody, and no one understands what is the rationale behind it.

What is clear, of course, is that the investigations, the trial, everything that's currently ongoing will obviously continue because these are sovereign decisions.

And like I said, they have to do with Brazil alone.

So say this tariff goes through, and I think there's a lot of debate over whether they will actually happen.

But say the 50% tariff goes through on Brazil, what would that do to Brazil?

How would that affect Brazil's economy?

So, Brazil and the United States have, as I said, a long, very, very long

commercial trade relationship and investment relationship for that matter.

There are U.S.

companies that have been in Brazil for over a century.

There are Brazilian companies that have been in the United States for also a very, very long time.

There are lots of things that the two countries buy and sell from each other.

Lots and lots of different products and different categories of things and goods and services and everything in between.

Brazil is, as you know, Latin America's largest economy.

It's larger than Mexico.

And of course, you know, it can

obviously withstand the 50% tariffs, although it will hurt a lot of sectors in Brazil.

But it should be said, it will also hurt a lot of sectors or would hurt a lot of sectors in the US if that tariff were to come into effect.

When that announcement happens and you are in Brazil, what is the feeling among Brazilians?

Is it sort of like this is kind of crazy and funny and this guy is stupid?

Or is it this is really scary and this is escalating a relationship that we depend on?

Is it this is just more drama and it's more TV and it's kind of exciting?

Like, I think in America, the answer is often sort of all of the above.

I think a lot of us find it just, it's entertainment in a lot of ways at this point, because it's just, it's, it's getting so crazy and oftentimes it never goes through.

But as someone in Brazil, what is the feeling when a headline like that comes out, which should have this massive consequence, but as we know, maybe it's just funny news.

The first reaction was sort of shock and astonishment.

Yeah.

I won't say shock and awe because there's no awe element to this.

So it was shock and astonishment.

Everybody was just completely taken by surprise.

And there was an element of what, you know, what is going on?

What is this about?

Why, why are they doing this to Brazil at this point when Brazil doesn't even have?

I mean, the typical rationale that you see coming out of the U.S.

administration for tariffs, yes, they can use anything under the sun that they like, but more typically, they've pointed to trade deficits as a reason for why tariffs are warranted on a particular country at a particular time.

Not that the trade deficit rationale really has any economic bite to it, but at least that's how they've framed it before.

With these tariffs on Brazil, they haven't used any trade issue to kind of underpin or underlie the decision because Brazil doesn't have

actually a surplus with the US, or rather, the US doesn't have a trade deficit with Brazil.

It's the opposite.

The U.S.

has a trade surplus with Brazil, so Brazil has a trade deficit with the U.S.

So by that usual logic, you know, the 50% tariff doesn't work.

And then when people realized that the argument, the underlying argument was political in nature, there was a kind of a combination of, I would say,

all of the above.

So there was some entertaining aspects to that because of course people saw it as, no, you know, the U.S.

can't interfere in our business.

So there was an element of that.

There was an element of indignation and that element is still present given that, you know, there has been some turbulence way in the past.

So we're talking here about the 1970s and the 1980s between Brazil and the US and also the U.S.

and other Latin American countries at that point.

And that memory, you know, yeah, it was a long time ago, but it is still a very present memory to a lot of people.

So, whenever they see, you know, the U.S.

attempting to, in their view, interfere with things that are

of Brazilian, you know, concern and Brazilian concern only, of course, that doesn't rub people the right way.

So, you know, people get somewhat irritated by that.

So, there was an element of irritation.

And then, lastly, yeah, people are also scared, you know, because, of course,

the impact of a tariff of this size is very big.

And it can have a huge impact on many, many sectors of the economy and many, many sectors that the economy relies on to grow.

Agribusiness being at the center point of this when we speak of, you know, where the damages may lie and so on.

So I would say, you know, there's a combination of things going on at the moment, but I would underscore one thing.

Before the announcement of the 50% tariff, the situation in Brazil was

there are going to be general elections in 2026.

These are presidential elections, congressional elections, and elections for governor throughout the country.

And so this is a pre-election year, and

of course, things are already gearing up for the election.

And prior to the announcement, the current president, Lula, Luisinacio Lula da Silva, was actually not not doing very well in the polls.

What's happened since the announcement was made is that there's been quite a rally behind Lula.

And of course, you know, not unlike what happened in Canada.

In Canada, yeah.

You know, he's now doing somewhat better in the polls.

And

the far right in Brazil, which is somewhat aligned with, you know, the current U.S.

administration, they're kind of lost because they can't really make a case for why

50% tariffs would be defensible under any circumstance.

So in a way, you know, the announcement has sort of is sort of right now at least helping Lula politically.

The reason he does them is

largely to threaten another nation into getting something that he wants, or it's a negotiating tactic or whatever it is.

It sounds like this isn't working at all because as you you said, they're just going to proceed with this indictment of Bolsonaro.

And so what I'm hearing from you is there is an impact on enacting a 50% tariff on Brazil, but it's not nearly big enough for the government

in Brazil to change anything about what they're doing or how they're proceeding with this lawsuit.

In other words, it sounds like the threat.

is not working at all.

Is that right?

That's right.

It's not working at all.

Well, I just wanted to confirm that.

It's actually,

I think it's likely to backfire based on what we've seen elsewhere.

I feel as if I've been an evangelist for Brazil for the better part of the last 15 years.

And since then, I've been going to Brazil two or three times a year.

And it just has all of the underpinnings and all of the assets of an economy and a society that should be increasing its role on the global stage in economic growth.

Incredible natural resources, huge domestic market, incredible agribusiness, even some great tech companies.

I've gotten to know the management team at New Bank,

unbelievable natural beauty and tourism potential, leadership in renewable energy.

And yet it feels like Brazil is always a nation that is on the verge of happening.

It's always tomorrow.

It never quite seems to get out of its own way or command the space it could occupy.

What do you think?

Well, first off, do you agree with that?

And two, what is holding Brazil back?

I share that view completely.

It is a country that gets in its way every single time, I think.

The reasons are many for why Brazil doesn't actually ever quite take off.

It's always on the brink of taking off and then something happens.

A lot of it has to do with the country's very turbulent history.

So Brazil has a history of political crises, economic crises, and, you know, crises that just keep on happening

over and over again.

Not quite like Argentina, because in Argentina, that situation by and large has continued to the present day in a way that it hasn't in Brazil.

So in Brazil, things have kind of stabilized if we go back sort of, I don't know, 15 years or so, or maybe even a little longer.

You know, it is a country that has, by and large, at least stabilized itself on the economic front.

But politically, things continue to be very, very complicated.

It's a country that's undergone at least two very serious impeachment proceedings with actual impeachments of sitting presidents.

And the country has been oscillating a lot in the last few years between different political camps.

So you've got, you know, your kind of leftist political camp and your right-wing political camp.

Those two have become more extreme over the last few years.

And whenever an election pops around, what we've been seeing in Brazil a lot is that from one election to the other, the pendulum just swings wildly.

So it often goes from one end of the spectrum to the other.

At least that's what we've seen since about 2018 or so, or maybe slightly before that, 2016, which was the year of former President Dilma's impeachment.

So given that, given those circumstances, given the very high levels of uncertainty that exist in the country with respect to the political situation, broadly speaking, and the economic situation, although less so, I think that became and has become over the years a very serious impediment for

more reforms or other things that the country needs to sort of get a higher standing in global markets.

Policy decisions have been very complicated by this ongoing political turbulence.

And so all of that kind of underpins the sort of lackluster performance that we've seen in Brazil over, I guess, the last

several decades at this point.

Aaron Powell, Jr.: And bringing it back to tariffs and this,

I don't know, new complexion or approach to traditional trading partners that the U.S.

has adopted.

As Brazil, I would imagine, feels less of a bond with America, and we have been great allies, who's filling that void?

Is it China or is Brazil similar to other countries?

Our thesis is that

Trump's tariffs or his threats of tariffs have, in fact, inspired a flurry of deal-making.

But our thesis is that the deal-making is happening around us, not with us.

Any thoughts?

Is that a valid thesis?

And what do you see happening in Brazil, not only with respect to its trade relationship with America, but if and who else is filling that void?

Well, that is definitely a valid thesis.

We do see a lot of countries trying to reposition themselves when it comes to global trade and investment and partnerships with different countries around the world, especially as the U.S.

is proven to be more and more a kind of unreliable partner in a sense.

And certainly for Brazil, that has been the case this time, because, as I said, you know, the decision, the current decision on the 50% tariff, the announcement, as it were, was a complete surprise.

I think a complete surprise to everybody there.

What Brazil has been doing consistently over the past several years, but that has certainly gained momentum more recently,

is becoming closer and closer and forging ever stronger ties with China.

So, yes, definitely there is a China element in this equation, which absolutely cannot be ignored.

And, you know, the fact that the tariff announcement came at the heels of the BRICS summit, which was held in Rio, and I was there

as that was happening.

I don't think that's a coincidence.

I mean, I realize that the rationale given for the 50% tariff had nothing to do with the BRICS, at least

it wasn't outwardly spoken that way.

But certainly the fact that, you know, the summit was held in Rio recently, that there were a lot lot of communications about how these countries were trying to come together and form a group that would perhaps have some more significant trade relations in the future, since they don't have much of that now, with the exception of China, Brazil and China ties.

That certainly has, I believe, served to irk the US administration somewhat.

So I think

there's an element here that

is definitely present.

But as for the ties, the economic ties with China, those, as I said, have been growing ever stronger.

And in fact, what we have seen over the past few years and very recently is a great influx of Chinese investment and Chinese direct investment in the Brazilian economy with the setup of Chinese companies in Brazil.

So there are now a lot of Chinese companies that are competing with not only U.S.

companies, but also European companies that have been in Brazil for a long time for the domestic Brazilian market, which, as you said, is huge.

We'll be right back after the break.

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We're back with Profit Markets.

I recognize Brazil is your focus, but I wanted to talk a little bit about Argentina.

And that is, granted, it's coming from a pretty bad place.

My understanding is at the end of World War II, I think Argentina had the third largest economy.

And Argentina's just been ⁇ I mean,

Brazil, while it's kind of

the big engine that we keep or the sleeping giant, it feels that...

like Argentina is just in a coma and wakes up every once in a while to make a really bad decision and then drifts back into an economic coma.

And it feels as if Millé is actually, well,

people

such as myself, who are progressives, are a little bit cringe at some of his statements.

I think it's hard to deny that Argentina did need some sort of shock therapy and that he's applying it.

And my understanding is that inflation has dropped dramatically.

And there's a certain amount of optimism around Argentina that we haven't seen in a while.

One,

do you agree with that?

And two, how would you assess the situation, the economic situation in Argentina right now?

The underlying structural situation in the Argentinian economy, in particular on the fiscal side, as well as on many things pertaining to the size of government and the way by which the provinces in Argentina have a kind of autonomy that

always brings about fiscal consequences which make the situation for the country overall extremely hard.

There was a need to kind of get into these issues and try to do as much as possible.

I'm avoiding the use of the word reform on purpose because I don't think what has happened in Argentina to date, although it's been a lot, and Milley has indeed done a lot, but I wouldn't exactly classify it as a reform as such because the underlying issues, the underlying political problems between the provinces and the central government, the arrangements that exist between those entities that, you know, will eventually backfire on the fiscal accounts in some sense.

None of that is gone.

I mean, all of that is still in place.

What Millet has done is that he's managed to downsize some parts of the government that significantly needed that downsizing.

And so far, he's been very successful in sort of managing a fiscal situation that looked untenable

two years ago or a little over two years ago.

So that has made, and you know, he's secured an IMF program and all of that has sort of given Argentina you know sort of a

some breathing room I would say.

Where does the country go from here?

I think that's the big question because I don't think anybody really knows.

I mean, even for those people who are very optimistic about Argentina's prospects, I think most people realize that there are still significant vulnerabilities that remain.

In particular, and one thing that I will underscore is the fact that Argentina is a country that operates with two currencies.

They have their own currency, the peso, but they use the dollar for everything.

And the population at large is so used to the idea that they can count on the U.S.

dollar that it's almost like the dollar is another currency, or almost like, no, I would say it is another currency in Argentina.

So basically, it's a country that functions with the currency that they issue and with the currency over which they have no control, that one being the dollar.

And that is always a problem for them because whenever there's a scarcity of dollars or a lack of dollars in the Argentinian economy, the country flips into crisis mode.

Things haven't changed enough for that not to happen.

So that kind of crises that we've seen in Argentina over and over again is still a possibility in spite of the many reforms that Millet has put in place.

Another one of our big theses

for the year is that we would see, I mean, over the last 20 years, my sense is there's been capital flight from the majority of Latin American nations.

And as a result, you've had kind of multiple contraction in the stock markets, which is it's very difficult for any stock or any company to outrun a multiple contraction.

And, you know, unless you're Mercado Libre,

there's just very few stocks that have rewarded investors.

And as a result, it's been kind of a doom loop where more and more capital leaves Latin America.

And this is true globally.

Everyone's basically been drawing capital out of a market and putting it in U.S.

growth.

But it appears maybe that the rivers of capital might be reversing flow.

One, do you see that?

And how have markets responded in LATAM?

Is there a new sense of optimism across the region in terms of its own equity markets?

The region as a whole is so difficult to sort of kind of put under one single umbrella.

Generalize, yeah.

That I think it's more of a country-by-country story, right?

So

when you look across,

you know,

when you look at the two largest economies, so when you focus on Brazil and Mexico, yeah, those two countries are very much influenced by global conditions.

You know, it matters that global economic uncertainty is currently at an all-time high.

That, of course, affects a lot of things for both of these economies.

But the two the both of them have been doing

actually somewhat better than was expected i guess a few months ago and therefore you know there is some optimism going on both in mexican markets as well as brazilian markets in view of this better than expected performance so in the case of brazil which is the country that i'm most familiar with what we've seen is that economic growth has actually surprised it's not that great it's still kind of lackluster but it has surprised people on the upside.

So it's been somewhat better than what was expected.

The dynamic in labor markets and what's been happening in labor markets and unemployment in Brazil has also been surprising people on the upside.

And there has also been a good inflation story.

Brazil is also a country that faced, just like the US, very high inflation a while back.

And inflation, you know, kind of stayed at a very high level for a while.

But over the past few months, it has been coming down gradually.

Mind you, Brazil has just about the highest nominal interest rates in the world.

So the central bank has been hiking rates.

So interest rates currently stand at 15%,

which is really a lot.

And that, of course, is helping to bring down inflation.

But having said all of that, the economy at the moment actually looks quite okay

in spite of the big fiscal problems that it still needs to solve.

But none of those are imminent.

And so, you know things are looking quite okay which has led to this influx of of optimism and you know um

markets have rallied and and things have looked all right The question is, is this going to continue now with

this tariff threat on the horizon?

We haven't really seen any big moves in relation to that announcement or anything that has really spooked markets at this point.

I think everybody's sort of, as things usually go with these things, they're waiting it out to see if this is really gonna stick or if this is again one of those things that gets announced and then you know it gets backpedaled or put on the back burner for a while or whatever it is.

I think the expectation at the moment is that the 50% is never gonna come to fruition.

But if it does,

then I would expect to see a bigger impact on markets and also a bigger impact on the currency.

The currency has suffered some impact in the last few days, but not nearly as much as would be justified if everybody's seriously concerned about the effects of these tariffs.

Yeah, I'm just looking at the Brazilian stock market trading basically near record highs right now.

It's up 13% year to date.

Compare that to the S ⁇ P, which is less than 7%.

So it's basically like doubled the performance of the S ⁇ P so far this year.

What would you say are like the main tailwinds for Brazil?

What are Brazil's main strengths if you're making a bullcase on investing in Brazil?

What are you excited about?

Well, there are lots of things actually to be excited about because Brazil is moving quite a bit on the climate agenda.

And Brazil has a lot when it comes to opportunities in the energy sector, in renewable energy, or anything that has to do with climate adaptation and transition.

Brazil is at the forefront of that game, or at least it's one of the countries, you know, one of the developing countries, I should say, at the forefront of that game.

And it is a country that's very well positioned to do well on climate adaptation issues and on, you know, reforming the economy for climate adaptation.

And we have seen that with the, you know, private interest that is coming from abroad in things like green hydrogen, you know, and the development of green hydrogen plants in the northeast of the country.

country, which is something that has been happening.

And there's really not been any much government involvement in that at all.

It's a complete private sector initiative thing that's playing out there.

So I think

investors overall see these possibilities very clearly.

I think they also see clearly that the the stronger ties between Brazil and China are bearing fruit for both countries, but are specifically bearing a lot of fruit for Brazil.

Brazil has always been dependent on a lot of foreign investment to get things off the ground, to get its own investments off the ground, its own investment agenda off the ground.

And the fact that there's now such a big player as China interested and invested in all senses of that word in Brazil also gives the country a different footing

going forward and also with respect to attracting investment and capital from abroad.

If you had to

identify the biggest problems for Brazil, I'd love to get your views on just Latin America in general, but I take your point that that is the extreme generalization.

But, you know, when I think about like the issues that have ailed Europe, as an example,

probably

I think the first thing I would say is like a lack of innovation.

When I look at

China, maybe it would be the housing market and perhaps having to be under this authoritarian rule, which has been good for them, but also bad for them at times.

In America, probably polarization polarization has been kind of like the big issue.

What would you say is the big problem in Brazil right now?

And if you can generalize it, in South America, Latin America at large?

Polarization is definitely a huge one for Brazil and

for the region as a whole.

And then I would include everybody.

It's not even parts of the region.

It's for everyone.

So polarization is a big one, a very, very big one.

The other one I'd say is pretty complicated as well, and it's more of an economic issue, is the fiscal situation that these countries face.

Because for every single one of them, what you see, I mean, to varying degrees, all of them have fiscal problems.

The nature of the fiscal problem differs.

So, for some countries, it's one thing, for other countries, it's another.

But by and large, all of them are running high deficits, and all of them have high levels of debt.

And that's certainly the case in Brazil.

Very high levels of domestic debt, very high

deficits, fiscal deficits, which are quite difficult to control in the case of Brazil because

there are a lot of expenditure items in the budget which are constitutionally mandated.

So you can't exactly cut them down.

You can't exactly cut spending in the usual fashion that you would do when you have so much of that spending that is being, you know,

is directly linked to constitutional or things that are in the constitution, which obligate the Brazilian government and the Brazilian state to spend such amounts.

So you would need a constitutional reform of sorts to properly handle these issues.

And then as I was saying before, the political situation in Brazil being what it is, there certainly isn't going to be any reform of that kind.

So the fiscal problems are certainly a bottleneck.

To what extent is is that a reflection of the culture of Brazil?

And the reason I bring that up is because it's what you're describing is basically like the opposite problem in Germany, where they have a constitution which basically forces them to not spend.

And they're trying to figure out how do we adjust the constitution such that we can spend more money.

And we've talked about this on our podcast.

We believe that that is, you know, very linked to this culture in Germany of austerity and and being conservative and

being generally worried about the future.

So I'm just, I'd be interested to hear how the fiscal picture in Brazil and in Latin America is reflective of perhaps a cultural scene and whether those two are linked.

That's a perfect question.

And it is an excellent one.

And it has everything to do with the Brazilian case because the situation started as it is, the fiscal situation comes off of a very troubled history and a very troubled past.

So the constitutional issues that I was mentioning just now, they go back to what was happening in the country in the 60s and the 70s and the 80s when Brazil had a 20-year military dictatorship, which, you know, stripped people of

a lot of things, a lot of rights, a lot of access to things.

And, you know, it was just a very difficult period in Brazil overall.

And in 1988, after the country was re-democratized, that happened in 1985,

so the military dictatorship was gone in 1985.

But then Brazil sort of needed, after 20 years of military dictatorship, Brazil needed a new constitution.

And then in 1988, that new constitution came about.

And that constitution, which is the current constitution, is one that tried to fix a lot of the problems that Brazil had had in its past.

And in particular, it tried to address inequality, it tried to address, you know, the lack of access for part of the population to things like education and health.

And, you know, giving also there was a concern about pensioners and giving pensioners their due.

And, you know, so that after years and years of very high inflation during the military dictatorship, when these pensions were eroded, so that, you know, this would not happen again in the future.

The same applies to the minimum wage and to minimum wage legislation that was put in place and things that were enshrined in the Constitution with respect to the minimum wage.

So, all of these things that the formulators of the Constitution back in 88 tried to fix because of historical wrongs that were perceived, they kind of went overboard with a lot of that.

And thus,

much of the enshrining of spending that we currently see in Brazil that makes it very hard to adjust, you know, the

budget.

That really comes from that history.

So I'm very glad you asked that question because the link is direct.

And it sounds like, I mean, Javier Mele,

who comes out with the giant chainsaw and the ideas, he's trying to reverse that trend in Argentina, it feels like he might be,

I don't know, maybe an indication of what's to come for the nation surrounding Argentina.

I mean, it sounds like that was Argentina's solution to their problem, which was specific, but sounds similar to the issues that you're describing.

Do you think that we're going to see more Millay-type politicians and leaders in South America?

That is certainly already happening.

And in fact, you know, if you look at former President Jair Bolsonaro himself, he was sort of a Millay, you know, precursor of sorts.

I mean, not exactly, exactly, but in some ways yes, because he was a defender of the so-called minimal state.

So he really wanted to cut things down to the bare bones, which in Brazil is really hard because the inequality, like in Argentina too, but in Brazil the situation is a little bit worse.

When it comes to inequality, the levels of poverty, the number of people who are completely excluded from anything you might imagine,

you just can't take a chainsaw to the state like that and expect that the population is going to be well served by it because in fact it won't, you know,

even given the fact that

some things need to be done on the fiscal side.

But how to actually go about that in a country with such high levels of inequality and social injustices all around is not trivial.

You know, it is really, really difficult.

And it needs a properly functioning political system for things to happen.

And the lack of that is what kind of leaves Brazil hanging in this situation.

And yeah, I mean, Millay-like figures are popping up everywhere.

And I expect that we will see a lot of that going into the 2026 elections in Brazil.

Yeah, I guess the distinction that we'd have to make with Millay, and which I'd probably give him credit for, is like he campaigned on the chainsaw.

Yeah, he did.

But it seems like actually his form of governance is not so much chainsaw and it's a little bit more strategic than that.

And also he's not an insurrectionist and he didn't attempt a coup, which is which is also good.

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So last question for me.

If you were to go long any one of the countries in Latin America,

And

I'll say, well, I was going to say not including Brazil, because I think you, like me, have a bias bias because you have affection for Brazil.

But

what country do you think is set for the most success based on where they are at this moment?

Chile, without a doubt.

Huh.

Was not expecting that.

Well, you know, Chile is a country, there's a lot of political issues there.

There's a lot of political turbulence there.

But when I look at Chile as a Brazilian, so as somebody who's from the region and kind of looking across and trying to see, you know, where things seem a little bit more stable,

they do seem a little bit more stable in chile now it's not a country that has nearly the same size as you know a brazil or an argentina or a mexico it's a much much smaller economy it is an economy that is very dependent as you know on mineral exports and in particular on metals and you know copper and whatnot the things that they export so they're very much subject to whatever is happening in global markets on that front.

But all that being said, you know, they did do a very comprehensive reform or economic reform back in the day.

And they have reaped the fruits from that, you know, over the years.

And in that way, they have distanced themselves somewhat from the Brazils and Argentinas of the region.

So they are a little bit farther ahead than most.

And I think they're a little bit more resilient than other countries.

Now, that resilience has, you know,

has suffered over time.

So

it's not the case that Chile Chile is the same economy or the same country that it was, say, 10, 15 years ago.

It was certainly somewhat stronger at that point.

So things have been degrading.

But I would say it's still the country that, to me, looks more politically and economically sound

than others, than some of its peers.

If there was anything that you think America and Americans could learn from Brazil and from Brazilians, What would that be and why?

Well, it's ironic that I would say something like this, but I will say it.

Look at our institutions.

Our institutions have been working.

That is actually something that we haven't seen very often in Brazil, you know, in the institutions working as well as they have been, but they have been working pretty well.

And, you know, the fact that the country was able to withstand an attack such as it did in 2023 and kind of come out on the other side, I don't want to say completely, but at least in part, is really impressive.

And, you know, that does go back to lessons that we learned when we actually had a 20-year dictatorship.

So there are things that, you know, have been learned in Brazil and that have been thus used to erect these institutions, which are currently solid.

Now, that doesn't mean they can't be destroyed.

That can happen.

And as a matter of fact, that's what was being attempted back in 2023, and it failed, but it could succeed, you know, at some point.

What would those lessons be?

Like, what do you think Brazil has gotten right in terms of maintaining institutions, maintaining their integrity?

What are they doing that perhaps the U.S.

is not doing?

I think the one thing that is very clear is that autocratic regimes,

they, you know, may actually do fairly well for a little while.

So if we look at the experience in Brazil with the dictatorship, we did see a bit of an economic miracle in the late 60s and early 70s, which lasted for about five years or so.

as a result of you know this regime coming into being and thus controlling a bunch of things and trying to you know um run the economy all on its own and doing this and doing that and sort of meddling with different things.

That seemed to work for about five years.

But then the country went into a period, a very lengthy period of more than 15 years because this outlasted the military dictatorship of massive economic turbulence and political turbulence at that, but massive economic turbulence.

And that turbulence came in the form of extremely high inflation, very, very high unemployment, a lot of disenfranchising of people.

You know, it was just a mess.

It was a mess.

I lived in Brazil while it was a mess, and

I can't overestimate or exaggerate how much of a mess it was.

So I do think that those kinds of experiences, people learn from that, and they learn to see, you know, where things have functioned, where they have not, and why it is that, you know, fully autocratic regimes are simply not good.

And they may be okay in the short run, but ultimately they'll bring bring the country down.

And that's what happened there.

Yeah, that makes a lot of sense.

Thank you so much for joining us.

Monica DeBol is the senior fellow at the Peace and Institute for International Economics, and she's also the host of Policy for the Planet.

This was great, Monica.

Appreciate your time.

Thank you.

And thanks so much for having me

on the show.

I enjoyed it a lot.

And Scott, I'm glad to hear that you're a Brazil fan.

Every year.

Every year I go with friends to Floripa.

I love Sao Paulo.

I'm a huge fan of not only Brazil, but

there's no way to say this without it sounding douchey.

My favorite hotel in the world now is the Rosewood in Sao Paulo.

I love the.

I used to go to Rio, now I go to Sao Paulo.

I absolutely am in love with Brazil and Brazilian people and Brazilian culture.

And so

very much rooting for your homeland.

Thank you.

Yeah, we're all hoping that, you know,

this will help us.

It is helping so far.

There you go.

Thanks, Monica.

Thank you.

Ed, what did you think?

Well, it was really interesting.

I thought the most, probably the most interesting point was this idea of

the perils of an autocracy just being fresh in the minds of Brazilians and the idea that that resonates for them when they start to see dictatorship or authoritarianism, it's a lot more scary when you've seen it in your lifetime.

And I just wonder if other countries around the world are looking at America

and it's bringing up memories of when they were ruled by authoritarians.

I don't want to get too

pessimistic or doomsday about this, but it is interesting that that is one of the takeaways is that Brazilian institutions, there's more trust in them and more interest in them because of that.

I wonder if that brings up any thoughts for you.

Well, it's interesting.

Brazil appears to have a more resilient democracy than we do right now.

Its institutions are holding.

They had sort of this Diet Coke insurrection, and they immediately charged the president who incited the insurrection, which seems to me what you would need to do.

So it's

they have obviously

it's an interesting thought.

They have such an ugly history around dictators in Latin America and strongmen

that I wonder if they're, whereas it's kind of like new and interesting for us, it feels like.

So, hey, let's see if this works.

Whereas they've kind of been there and I think

are having a healthier gag reflex on us right now.

Yeah, it feels like in America we see that and we think, oh, this is forceful.

This is this signifies strength.

It's machismo.

But I think for others, it's like this is a very slippery slope to a very dark path that has happened over and over again in history.

This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer.

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Our research associates are Isabella Kinsel and Dan Shallan.

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You have me

in kind

reunion

as the water

So Ed,

you're taking your girlfriend to Sardinia and I want you to know on that beautiful blue water and having romantic dinners,

you're going to think, you know, maybe I should be a more sensitive boyfriend, but I just want to tell you not to go there, that sensitive boyfriends, all that happens is you end up in the car,

both of you crying, and that parallel parking spot is still empty.

I'm on a roll of mediocre jokes today.

Yeah, yeah, yeah.

At least that one, that one feels accurate.

That's true.

That's very true to me.

There you go.

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