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Chile Unrest Shows Need for Social Spending, Brazil’s VP Says

Chile Unrest Shows Need to Take Care With Austerity, Brazil Says

(Bloomberg) -- Anti-government unrest in Chile that began as a protest against a 4-cent hike in subway fares is flashing a warning sign in Brazil, Latin America’s biggest economy.

Vice President Hamilton Mourao said the turmoil in Chile serves as a reminder for the region to take care of its most vulnerable, even as it seeks to maintain fiscal discipline. Brazil itself experienced major protests six years ago over a similar issue -- in its case a rise in the price of bus tickets.

Chile Unrest Shows Need for Social Spending, Brazil’s VP Says

“We can’t be only liberals and we can’t be only statists; we have to go to the center,” Mourao, who’s acting leader while President Jair Bolsonaro travels overseas, said Wednesday in an interview in Brasilia. “We have to take measures so that productivity grows but we have to look for the social problems that all our countries have.”

Chile, regarded as a poster-child for economic stability in one of the world’s most volatile regions, has faced the worst social upheaval since its return to democracy three decades ago. The protest against the subway fare increase has morphed into broader angst over social inequality and the quality of public services like pensions, health care and education. Fifteen people have died and thousands arrested since the demonstrations started last week.

Mourao said that while Chile enjoyed a relatively strong economy -- it’s among South America’s wealthiest nations -- it lacked robust public services. As the world economy evolves, any spark can set off large protests such as those Brazil faced years ago, he said.

President Sebastian Pinera has moved in Chile to appease the protesters, though it’s unclear if it is enough to defuse the unrest. He plans to raise the maximum income tax, lift basic pensions, introduce a guaranteed minimum income and insurance for health expenses, and control utility prices.

Mourao’s remarks underscore the dilemma many governments face when enacting austerity measures to wrangle into order debt levels that are increasingly unsustainable as growth slows globally. In Brazil, the business-friendly agenda of pension and tax reform of Economy Minister Paulo Guedes has struggled so far to kick start a limp economy.

“We are ending the industrial mass production and we’re entering the knowledge economy so jobs are vanishing, other jobs are coming,” Mourao said. “This makes people very anxious, people fear this, they’re angry because the state can’t provide what the state should provide.”

Yet Mourao said the challenge for Brazil is to further shrink the size of the state to free up resources to invest in infrastructure and social programs.

Bolivia Doubts

Mourao also said Brazil is “deeply concerned” about the situation in Bolivia, where President Evo Morales seems on track to win a fourth term despite protests and allegations of fraud after updates of a preliminary vote count were mysteriously suspended for 24 hours.

“In my opinion, this re-election of Mister Evo Morales was a little bit forced,” he said, questioning the president’s push to run again despite constitutional norms barring him from seeking another term.

Morales declared victory on Wednesday in the disputed vote, and said there is a coup plot by his opponents, with international support. His margin has gradually widened as the final votes from rural areas are tallied. But the Organization of American States slammed Bolivia’s electoral authority for its bungling of the ballot, and called for a second round of voting in December.

While saying Brazil wouldn’t interfere in Bolivia’s internal affairs, Mourao said he is monitoring the situation and expressed concern about social unrest in the Andean country that’s a large supplier of natural gas to Brazil.

--With assistance from Simone Iglesias.

To contact the reporters on this story: Walter Brandimarte in Brasilia at wbrandimarte@bloomberg.net;Rosalind Mathieson in London at rmathieson3@bloomberg.net

To contact the editors responsible for this story: Juan Pablo Spinetto at jspinetto@bloomberg.net, ;Rosalind Mathieson at rmathieson3@bloomberg.net, Matthew Bristow

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