The Wall Street Journal, 10/27/2014
Brazilians had their democratic say on Sunday, voting narrowly to re-elect President Dilma Rousseff of the left-leaning Workers’ Party to another four-year term. On Monday the world voted on Brazil’s choice, and this time the result was a resounding no confidence.
Brazil’s currency, the real, fell almost 2% and was trading at about 2.52 against the dollar at the end of Monday, close to its lowest point in a decade. Brazil’s main stock market index was down 2.8% to its lowest close in six months. Those markets had rallied some in the last few weeks as challenger Aécio Neves had come close to Ms. Rousseff in the polls. So the Monday selloff was a case of investors pricing in the discount of continuing bad economic policy. A Brazil credit downgrade to “junk” status is likely on present trend.
Brazil is proof that democracy is no guarantee of prosperity. A country rich in resources and people has managed to squander both with an overweening state that buys votes via income redistribution and price controls on gasoline that force losses on producers. Those are Third World policy blunders in a country that fancies itself a First World aspirant. This explains Brazil’s consistent economic underperformance (0.5% growth this year, following 2.5% in 2013) and 6.75% inflation rate.
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