Brazil’s Depressing Election

(The Bloomberg View) -- Brazilians understand that their economy is in trouble: A remarkable 85 percent say their country is on the wrong track, and fewer than one in five express confidence in the government. Sadly, this weekend’s election offers little prospect of relief. Despairing voters have embraced extreme choices. The reforms the country needs will require consensus, and the controversial top presidential contenders seem unlikely to achieve it.

Brazilians have reason to be dissatisfied. The still-unfolding Carwash scandal has ensnared top politicians and business executives. With nearly 64,000 homicides last year, crime and violence and their associated costs are rising to record levels. Brazil is struggling to recover from its worst recession, which caused the economy to contract by more than 8 percent in 2015-16 and pulled millions of newly minted members of Brazil’s middle class back into poverty since mid-2014. Unemployment remains at more than 12 percent. Rising debt has left the government little room to maneuver.

Consider the two leading presidential candidates. Jair Bolsonaro, a far-right former Army captain, leads the polls. He has extolled Brazil’s former military dictatorship, threatened to reject election results unless he wins (although he subsequently walked that back), promised draconian measures on crime and cuts in government, and generally trampled progressive sensibilities.

His nearest rival, former Sao Paulo mayor Fernando Haddad, is the standard-bearer for the left-wing Workers’ Party, selected by former President Luiz Inacio Lula da Silva because his own conviction for corruption kept him from running. Haddad champions the interventionist economic policies that caused Brazil’s collapse — but Workers’ Party stalwarts seek revenge for Lula’s conviction.

What Brazil’s economy needs is not firebrand populism of right or left, but pragmatic reforms and political cooperation. Yet centrists among the other 11 candidates have struggled to gain traction.

Nowhere is the need for change more obvious than in Brazil’s pension system, a driver of the country’s mounting fiscal stress. Brazil’s budget deficit now hovers at 8 percent of gross domestic product, three points greater than the Latin American average. Public-sector debt reached 74 percent of GDP in 2017. The country’s credit rating has slumped, adding to its already high borrowing costs.

Pensions, at a cost of 12 percent of GDP and rising, are a big part of the problem. They’re unusually and unaffordably generous. There’s no minimum retirement age, and benefits far outstrip those of Brazil’s neighbors and more developed nations. The system is also deeply regressive, helping rich retirees more than the poor. And demography is not on its side: Its pay-as-you-go design is already in the red, and Brazil’s population of those aged 65 years or older will more than triple by 2050.

The right to retirement benefits was written into Brazil’s constitution, so pension reform requires a two-thirds vote in its legislature. A mostly sensible fix pitched by outgoing President Michel Temer couldn’t clear that hurdle. It’s doubtful that Bolsonaro, who comes from a small party, or Haddad, who comes from one that’s freighted with heavy baggage, can succeed where Temer failed: Both acknowledge the need for reform, but neither has spelled out how it could or should be done.

Pension reform is especially urgent, but Brazil also has many other problems — economic and non-economic — to confront. Even where solutions don’t face constitutional obstacles, they typically do demand the ability to strike compromises, which means building bridges between contending factions. This weekend’s vote will probably lead to a run-off between two candidates notably ill-suited to that task. Brazil needs a revival of the pragmatic center. It looks unlikely to get it.

Editorials are written by the Bloomberg View editorial board.

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