Brazilian President Michel Temer: Reviled Today, Beloved Tomorrow?

Over the weekend, I was pointed to an article in the Wall Street Journal that reframed some of my thoughts on the curious position of Brazil’s current President, Michel Temer.

August 16, 2018, Wall Street Journal: Brazilians Denounce Their Leader, but Economists Offer Praise

As former Americas Economist editor Michael Reid recounts in his book, Brazil: The Troubled Rise of a Global Power, Brazil’s macroeconomic and fiscal issues are numerous, centered around a bloated and unsustainable budget and pension system, gross inefficiency in government spending, and endemic corruption that extend from local fiefdoms to national politics.

In his book, Reid claims that the go-go bullish years of President Lula Inácio da Silva, where investment surged into Brazil and millions of citizens were pulled out of poverty, was a lost opportunity for Brazil to modernize its governance and fiscal spending. Rather than using the tide of macroeconomic goodwill to implement reforms, Lula ramped up government spending, buoyed by the high price of oil, winning over the Brazilian population and leading President Obama to call him “the most popular politician in the world.”

President Michel Temer, on the other hand, has been dramatically unpopular in Brazil from his assumption of power in 2016, after the impeachment of President Dilma Rousseff for budgetary infractions. To many Brazilians, Temer is seen as illegitimate, the byproduct of a rigged and corrupt political system that kicked Rousseff out of office.

Fora-Temer-manifestaçãoFORA TEMER – Signs, chants, and graffiti envoking Temer’s illegitimacy can be seen across Brazil, as seen in this image from a 2016 protest on São Paulo’s Avenida Paulista

However, this illegitimacy has had a somewhat counterintuitive impact on Temer’s tenure. It appears that Temer has made the calculation that while there is little change that he will reclaim any of the popularity, that that by planting the seeds for medium-term macroeconomic success through unpopular reforms, history will judge him by his legacy of setting the stage for the success of successive leaders.

Per the Wall Street Journal:

The team cut inflation from 9% when Mr. Temer took office to 3% last year, the lowest since 1998, helping to alleviate the strain on household budgets. In a country beset by budget overruns and high public debt, his administration won constitutional approval limiting government spending for the first time.

Mr. Temer also cobbled together the legislative backing to loosen labor law restrictions, leading to a 25% drop in job-related lawsuits. His administration opened up a moribund oil sector to foreign investment, auctioning deep-water oil fields that won the government a nearly $2 billion signing bonus.

Under his watch, Brazil’s central bank trimmed its main interest rate to a 6.5% historic low from 14.25% two years ago.

Through these actions, Temer seems to be using the example of former President Fernando Henrique Cardoso, the architect of the 1994 Plano Real as Itamar Franco’s Minister of Finance, and subsequent President. Cardoso is oftentimes seen as the father of modern Brazil, and the individual most responsible for setting the stage for Lula’s (and Brazil’s) success.

As the article cites, Temer has not touched the most controversial and dangerous fiscal threat: the country’s bloated and unsustainable pension obligations, but the steps taken have served to shore up much-needed investor confidence, and set the stage for the upcoming October elections. In a year without a clear frontrunner or hegemonic party in Congress, whoever wins the Presidency will likely have to secure a coalition of different parties, preventing much of the hard work left to be done. While the elected President still has a-ways to go to restore confidence in Brazil, Temer’s recent tenure has laid some of the groundwork for future success, a curious position for one the most unpopular Presidents in Brazilian history.

Update from Brazil: The Strike is Over!, With Consequences To Come

One of the principal demands of Brazil’s striking truckers and oilworkers was a return to a subsidized oil price, protecting Brazilians from international price fluctuations and macroeconomic trends. The principal advocate and architect of this shift (outside of President Michel Temer), was Pedro Parente, who assumed the role of Petrobras’ CEO in the wake of the impeachment of Dilma Rousseff and at a low point in investor and broader outsider confidence.

In his tenure as CEO, Parente’s role was to “re-privatize” Petrobras, which controls 90% of Brazil’s oil and gas production. The company is a curious hybrid of public and private, as the Brazilian state is far-and-away the company’s largest shareholder (64%), yet the company is listed on both the Brazilian (Bovespa) and NYSE stock exchanges, and therefore subject to investor criticism and a ever-fluctuating stock price. During Parete’s tenure, Petrobras has been a hugely successful investment, and saw a eight-year high in its market valuation (company value) just days prior to the strike.


Petrobras ($PBR) stock price, May 2016 – May 2018 (Yahoo Finance)

In the wake of President Temer’s decision to re-subsidize oil prices, and cave to the multitude of other demands made by the truckers over the past two weeks, Parente has resigned from his position as CEO. In his resignation letter, addressed to the “President of the Republic”, Parente writes:

Today, Petrobras is a company with a recovered reputation, safety indicators in line with the best companies in the sector, very positive financial results, as demonstrated by the last disclosed results, debt on a clear reduction trajectory and a strategic plan that has shown itself capable of responsible and lasting investment, generating jobs and wealth for our country. And all this without any capital contribution from the National Treasury, according to our initial conversation. It seems to me, therefore, that the bases of a virtuous trajectory for Petrobras has been launched.

The truck drivers’ strike and its serious consequences for the life of the country triggered an intense and sometimes emotional debate about the origins of this crisis and placed Petrobras’ pricing policy under intense scrutiny. Few were able to see that the [policy] reflects shocks that have reached the global economy and its resulting effects on the country. Movements in oil and exchange rates have raised the prices of derivatives, magnified tax distortions in the sector and led the government to seek alternatives to the solution of the strike, defined by the subsidy concession to the diesel consumer.

I have reflected a lot on everything that happened. It is clear, Mr. President, that further discussions will be needed. And, in view of this situation, it is clear that my stay in the presidency of Petrobras is no longer positive and additive to the construction of the alternatives that the government is facing. I have always tried to demonstrate, in my career in public life, that, above all, my commitment is to the public good. I have no attachment to positions or positions and will not be a hindrance to these alternatives being discussed.

Therefore, by means of this letter, I present my request for resignation of the position of President of Petrobras, irrevocably and irreversibly. I make myself available to make the transition for the period necessary for the one who comes to replace me.

Parede resigned on Friday afternoon (May 1), with clear intentions of a “news dump” meant to blunt the immediate investor reaction to his departure. While investors have likely speculated that Parete was to resign, with the stock price already reflecting this overwhelming probability. However, I would expect the stock to continue to fall over the next week, as uncertainty around Petrobras’ independence and ability to weather future political shocks is in doubt, and the stock acts as a referendum on investors’ low opinion on Brazil’s immediate political future.

It has been interesting to see how generally nonplussed ordinary Brazilians are by the recent events’ impact on Petrobras’ value destruction and the company’s future prospects. In fact, it was even cited to me as a common strategy of layman Brazilian investors – pick up Petrobras stock during the latest scandal or lull in broader Brazilian sentiment, and then sell it once the econ / finance media / broader investor confidence returns! In ordinary Brazilian fashion, there always seems to be a bit of humor and levity amidst the fatalism and/or pessimism that can envelope the country, even with its national futebol / soccer.

Politically and socially, Parete’s resignation can be interpreted as a reflection of the populace’s broader feelings towards markets and foreign capital, as well as a further validation of the trucker’s demands and Temer’s continued unpopular tenure. The head of the Brazilian Senate lauded Parente’s departure on Twitter, citing his lack of “social sensitivity and political responsibility” as the principal reasons behind his departure. More broadly, the truckers continue to be perceived as the sympathetic party in their fight against Brazilian political cronyism and corruption, winning the narrative and the fight for public opinion with 87% of the population showing support for the truckers and their strike. It seems like any fight that pits the Brazilian political class against the populace in this current moment will prove ultimately destructive for the politicians, further underlining the fragility of Brazil’s current political state leading up to the October elections.

Brian Winter, who is the editor-in-chief for the Latin America-focused publication Americas Quarterly posted his reflections from his recent visit to Brazil during the truckers strike, concluding the that the current state of the country’s population is “frightened, leaderless, shockingly pessimistic.”

Winter provides an interesting perspective as someone who has witnessed Brazil’s rise and recent downturn with a broader Latin American and global, “outsiders” perspective. And his principal conclusion is one of disbelief: at the current fragility of of the Brazilian state and the increasing possibility that the “recovery” consensus cited by most macroeconomists and investors may be an illusion, or at least overly optimistic. That the sought-after “bottom” to the Brazilian economy following the exposure of billions of dollars of graft and corruption and expulsion of tens of political and business leaders, including its “native son,” former President Lula may not have been reached, with further volatility and unpredictable consequences yet to come.

At the top of these risks is an intervention by the Brazilian military, who have taken on an increasingly muscular and public stance amid public clamoring for an end to political corruption and a return to effective governing. Whereas discussion of a return to a military dictatorship was far from the public discourse just two years ago, Winter is shocked that it’s now become a common theme of conversation, even in its repudiation. As Winter cites in his article, recent scandals and exposed corruption has led to Brazilians having the lowest opinion of Democracy across Latin America, with just 13% of respondent “very satisfied” or “satisfied” with democracy in Brazil. Just 4 months ahead of the October elections, there is a clear disconnect between the scheduled elections and the pulse of the Brazilian population, who are increasingly clamoring for an upheaval beyond any ordinary election.

Interestingly, Winter sees this malaise as a further sign pointing to the election of the military commander Jair Bolsonaro. He writes that a traditional military coup or intervention as popularly conceived, with tanks rolling down Avenida Paulista, is unlikely in this current age of instant news / social media and international attention. However, Bolsonaro’s brash and irresponsible stance towards existing institutions, his violence-oriented approach for addressing Brazilian issues, and his broader campaign for election, could be a bellweather of broader support for the military and its commanders as responsible, effective, and trustworthy, despite its history of political silencing, persecution, and torture on its own population. Certainly, there is no other Presidential candidate to date who has managed to capture even a hint of this disconnect.

In the article, Winter recounted a conversation with a political analyst during his trip, who commented:  “I don’t think a majority of Brazilians want a coup. But if it did happen, the people would probably support it.”

On Strike!: Brazil’s Truckers and Oilworkers Strike, With Broader Implications

Here in Brazil, the entire country has been impacted by strikes organized by the country’s trucking and oil workers unions that have paralyzed Brazil’s economy and commerce over the past two weeks. Scenes of blockaded highways, long queues at gas stations, and empty grocery stores have dominated the television news, while social media is abuzz with misinformation about the strikes and cellphone videos of squabbles between truck drivers on different sides of the conflict.

Reuters and the Associated Press have provided helpful daily summaries of the ongoing action, including President Michel Temer’s ongoing attempts to quell the strikes and negotiate with the unions, as well as the strikes’ detrimental impact of the strikes on the Brazilian economy.

Associated Press:



Over the course of the two-week strike, Temer has repeatedly caved to the demands of the protesting truckers, who  in addition to not working, set up roadblocks blocking the entry and exit of non-union trucks across the country. First, for the Brazilian State to subsidize the price of diesel fuel, which has been steadily climbing over the past few months, and alleviate the truckers from daily oil price fluctuations by a monthly adjustment. However, the truckers, who are mostly independent contractors, have been slow to return to work and accept the concessions made by the Temer government, believing that prices would return to their current heights at the end of the subsidization period. In response, Temer has further kowtowed to further the trucker’s demands by alleviating the financial pressure felt by the truckers and make their trade more predictable and profitable, agreeing to lower highway tolls and establishing minimum freight rates. In each of these instances the government will foot the bill (in the case of the fuel subsidization, paying oil supplier Petrobras directly), at an additional cost of R$9.5 billion reais ($2.54 billion USD).

The strike has underlined Brazil’s reliance on its truckers and highways to feed / supply the country and as an engine of commerce, due the country’s lack of rail or canal infrastructure. Truckers make up the shortfall in much-needed infrastructure and logistics-related investment across the massive land-mass that is Brazil, estimated to be the source of as much as 60% of all goods transported within the country. Across the country, state(s) of emergency were declared by local governors, bus and metro routes were cut or cancelled altogether, food supplies in grocery stores, gasoline at gas stations, and medical supplies in hospitals have all dwindled, especially in the non-coastal interior of the country. In addition, Brazilian industry has ground to a halt: its principal export-oriented industries (automotive manufacturing, agribusiness, and meat processing) have lost billions as they have paused production due to a lack of fuel and other necessary inputs, and will likely take weeks to normalize. In a particularly extreme case, the Brazilian poultry sector is warning that a industry-wide “collapse” may be imminent if the situation is not resolved, as over 70 million chickens and crucial breeding animals have died due to lack of feed, posing a further risk to the environment and public health.


Long lines outside of a Shell gas station, as Brazilians have rationed their fuel consumption

Further underlining the severity and widespread impact of the strike, Brazilian economists are now estimating a reduction in 2018 GDP. And on a global stage, financial markets have responded to the Brazilian strikes, resulting in a loss of nearly 30% by Brazilian oil company Petrobras, and a downturn in the Brazilian stock exchange Bovespa and Brazilian Real.

bovespa - brl - petrobras 2

The reaction of financial markets to the Brazilian strikes, with key dates annotated (by me)

While the supposed rationale and conditions for the strike are likely to be resolved fully in an attempt to restore investor and consumer confidence, there remains a broader question whether the strike will portend a larger, sustained undercurrent of protest. Throughout the negotiations, there remained a disconnect between the union leaders negotiating with the Temer administration and the truckers themselves, who have been slow to concede despite their demands being met (per Temer: “we gave them everything they asked for.”) More broadly, the general population has been broadly supportive of the strikes, citing palpable anger towards the Brazilian political class and the vast inefficiencies of the Brazilian state – the high taxes and cost of living relative to the level and quality of service provided by the State. Two weeks in, there has not been any popular backlash whatsoever against the truck drivers themselves, as the population has mostly reserved their criticism for President Temer, the most unpopular President in Brazilian history.

The strike reflects the attitudes of many Brazilians’ towards the role of the state – to step and in provide financial cushion to the Brazilian citizen against rising costs. In the mid-2000s, Brazil was buoyed by high oil prices, which resulted in an expansion of the state by President Lula da Silva and a rise in the economic prosperity of many Brazilians . However, once the price of oil fell, the Brazilian citizen was suddenly pitted with untenable costs. As a result, Lula’s hand-picked successor, Dilma Rousseff, implemented price controls that subsidized the cost of oil and insulated Brazilians from the world oil markets. While this was a politically popular gambit, it pulled the Brazilian economy further into recession, and resulted in an outflow of foreign capital. Ping-ponged in the middle of this saga is the Brazilian oil company Petrobras, which despite being publicly traded is highly politicized and controlled by the Brazilian statem, and was implicated in the Operation Car Wash political corruption scandal to funnel money to politicians via bribes and overcharging for services. Following Dilma’s impeachment and the payment of ~$3B USD to settle a shareholder lawsuit, President Temer and newly appointed CEO Pedro Parente sought to restore investor confidence in Petrobras and move it towards self-sufficiency, removing subsidies and ‘floating’ the oil price to reflect world market markets. As a result, Petrobras’ profits climbed, and its stock price improved dramatically. However, as the Brazilian real has devalued and global oil prices have continued to climb, the Brazilian government has chosen to intervene once again in Petrobras’ operations, lest they risk angering the truck drivers, or passing along the price increases to the Brazilian consumer.

oil price

World oil prices from 2009 – 2018 provide a useful backdrop to contextual recent Brazilian political actions

As the truckers strike has wound down, a second strike was begun by two major unions representing Brazilian oil workers with a similar rationale: the high cost of cooking oil. No doubt, this strike was spurred by the reaction of the Temer government to the truckers, and the desire to ensure that their respective needs are met as well.One of the principal demands of the oilworkers strike is the resignation of CEO Pedro Parente, and a reversal of many of the changes made by the Temer / Parente duo to re-open Petrobras to global markets and investors. While the oilworkers planned walkouts will impact operations at a majority of the country’s oil rigs and at refineries across six states, oil stockpiles and contingency planning will prevent the strike from reaching the impact of the trucker’s strike, but nonetheless, Brazilian industry is at a particularly fragile point, and further strikes or a broader protest may be likely.

One of the most concerning aspects of the strike has been President Temer’s threat of calling in the military at particularly tense moments to forcibly quell the protesters and end the strike. Thankfully, there were no significant standoffs between the military and the truckers, as the military mostly served to provide safe passage to medical and food supplies. However, Temer’s threats to “activate” the Brazilian military if necessary to disperse the protests reflect a dangerous strategy at a time when murmurs of the need for a military intervention have become increasingly louder and more pronounced. Temer remains embroiled in his own corruption and bribery scandals, with no immediate Vice President successor in the event of his indictment due to the peculiarity within the Brazilian constitution (as Temer was previous VP, and no replacement was voted in.) While Temer and his likely successors have all been downplaying any risk of a military intervention, Brazilian Military Commander Villas Bôas has become an increasingly vocal political voice following Lula’s arrest and the recent strikes, and “fake news” of a imminent intervention have taken over social media.

As previously mentioned, this only creates uncertainty leading into the elections in October. At the same time, I do think these protests have been telling from the standpoint of exposing the tensions and feelings at the heart of the Brazilian economy and its complicated position towards global markets.

Checking in on the Brazilian Elections (May 2018)

Yesterday, the Financial Times provided a helpful point-in-time overview of the Brazilian elections. As I’ve mentioned in the past, this year’s Presidential elections will be Brazil’s most consequential since the election of Lula in 2003, and will be the basis for Brazil’s turnaround in the next decade and beyond.

In my conversations with colleagues, friends, and taxi drivers (usually the best heuristic for a particular pulse of the population), the only consensus I’ve manage to glean is that no one knows what will happen. Recent polling shows that more than 45 per cent of voters are still undecided, with less than five months before the first round of the general elections. Of the presumptive candidates, the largest vote-getter has yet to reach 20%. The race appears to be wide open, with no incumbent, front-running candidate, or presumptive heir to the Presidency / throne.

By all accounts, polls in early 2018 showed Lula as the strong favorite, with approximately 40% of prospective voters opting for the former President. In large part, this was due to Lula’s name recognition and cult of personality, as well as the hope that Lula would be able to recreate the success of his tenure (macroeconomic and exogenous factors aside). After Lula’s arrest in March, which barred him from running in the coming election, many in Brazil’s middle and poorer classes were left without a candidate to put their support behind. Despite Lula’s arrest, a large portion of the Brazilian population still supports Lula, and broadly claim a ‘politicization’ or political motivation behind his arrest. While there is no obvious successor to carry Lula’s mantel, it is likely that whomever he anoints and endorses (whether from within his own party, the Worker’s Party [PT]), or outside of it, will immediately be given a huge lift.

More broadly, whereas recent Presidential elections have made use of via well-organized and -funded political parties, led by the Lula’s PT in recent history, the Lavo Jato corruption scandal has exposed the vast graft and corruption at the heart of the PT, as well as within the other major Brazilian parties, including the Brazilian Democratic Movement (MDB) and Brazilian Social Democracy (PSDB). Far-and-away the consenus amongst all Brazilians (rich, poor, and in between) is removing the incidence and broader culture of corruption in Brazilian politics. This increases the likelihood of th election of an ‘outsider’ or ‘third party’ candidate without the “taint” of corruption on the candidate themselves or the party they represent.

The FT does a good job of outlining the likely leading candidates, including the current frontrunner, the far-right Jair Bolsonaro, the left-leaning Ciro Gomes, the centrist Geraldo Alckmin and the well-known Green Party candidate, Marina Silva. Behind these contenders are entrenched candidates from the current Temer administration, including Finance Minister Henrique Meirelles, and Temer himself, who decided to give up on his first election campaign today (he assumed power after Dilma’s impeachment). None of these candidates provide much in the way of innovative or inspired thinking, and even less so in the way of concrete policy objectives. As an example, Bolsonaro has focused his campaign on improving security in Brazil amidst a sky-high murder rate and concerns about day-to-day safety. His solution? Killing all of the criminals in Brazil.

The backdrop of this election is a country teetering on the brink of an economic turnaround, or a tumble further down the depths of the longest recession in its history. As the FT explains, Brazil’s two key economic issues, resolving its unsustainably bloated pension system and shrinking the role of government to improve Budget deficits (one of the most inefficient in the world relative to its tax collection) must be addressed by the next President. Unfortunately, neither of these are particularly sexy issues, nor are they politically popular, akin to asking the Brazilian voter to “take their medicine” with the hopes of a medium- or long-term payoff (GDP expansion, investor confidence, etc.).

On the other hand, the failure to act on either of these issues will impact public equity and debt markets well before it makes its way to the average Brazilian. As I understand it, the key voting issues of the Brazilian voter were neatly summed up in a recent conversation I had with a political scientist: (s)he want to have a job to go to (employment), wants to get to work in a timely fashion (transportation), and doesn’t want their wallet to be stolen in the process (security). These issues all fit neatly near the base of Maslow’s Pyramid, and reflect the need for Brazil to improve on base-level indicators before it can think about re-assuming the mantle of regional or global political leadership.

Looking from the outside in, it’s fairly easy to imagine the unimaginable here in Brazil: the victory of the brash, violent, homophobic and misogynistic Bolsonaro. While Bolsonaro continues to lead in the polls, the feeling that he will be unseated by a more sane, middle-of-the-round candidate continues, even though no name comes to mind when asked who that candidate might be. The common reaction of Brazilians that I’ve spoken with when I’ve raised this likelihood has been eerily similar to the one that I would’ve had leading up to Trump’s election: It couldn’t happen. He’s an incredibly loose cannon. He’s an interventionist, and someone who has actively called for a return of Brazil’s military dictatorship. And have you heard the things he’s said about women, gay people, criminals, etc. etc.? He’ll bring the country back to the dark ages! Americans are likely to find these appeals and rationales familiar, and remember the odd, surreal feeling to wake up the morning after the election to seemingly dystopic newspaper headlines: Trump Wins in Historic Upset.

One thing that I’ve been pondering quite a bit is how to think about Democratice Presidential elections in the wake of Trump’s victory. By all accounts, Trump’s victory was a failure of polling, and data more broadly. Just one election after 538 founder Nate Silver’s victory lap and his proclamation on the inevitability of data in understanding political elections, data was proven to be wholly inadequate in capturing the outcome of the election. I’ll never forget following the election online and on television, beginning the night with Kellyanne Conway’s near-concession  speech, only to witness a complete reversal of the odds as the evening wore on. This graphic from the NYTimes accurately captures the dramatic one-eighty.


Source: NYTimes Live Presidential Forecast


While I do think it is important to translate the experience and lessons learned in the US (and the UK) elsewhere, there is always a certain danger in conflating different countries, political systems, and situations. As Nassim Taleb has explained over and over again, ‘black swans’ take place much more often than they’re probabilistically assumed to occur, and should therefore be considered, to the extent that they’re known ahead of time. In this case, there’s a strange cognitive dissonance taking place, whereby the actual data is showing a most-likely outcome that the general public has to-date refused to accept as possible, unlike the more commonly occuring reverse: an unlikely outcome that people irrationally believe to be more likely that it actually is.

There are several principle dynamics that differentiate Brazil’s Presidential election from the United States that are worthy of consideration:

1. Compulsory voting: Brazil is the largest country in the world to impose compulsory voting on its citizens. Despite penalities levied against non-voters, around 80% of the population votes in the Presidential election. This means that the complacent or uninformed voter plays a larger role than in non-compulsory situations such as the US.

My hypothesis would be that this could result in a larger-than-expected turnout for the candidates that get the most media attention (including social media) and / or offer the most ‘sound-bite-able’ clips.

ADVANTAGE: Bolsonaro

2. Two Round system: Somewhat differently than the primary system, Brazil has a two-round Presidential election whereby the electorate chooses between a broad field of candidates from across the political spectrum in the first round (October 7, 2018), with the top two victors vying for the Presidency just three weeks later in the same month (October 28, 2018) (interestingly, in the unlikely scenario that the top candidate in the first round receives >50% of the overall vote, he or she is declared elected, without a second round. In that short timespan, the unelected Presidential candidates will throw their weight behind one of the two victors, and begin the process of coalition building.

My hypothesis would be that the more centrist, and well-established of the remaining two candidates would be able to leverage their existing connections and party infrastructure to reign in votes from the first round field. In the event that Bolsonaro makes it to the second round, he will likely be more extreme and less organized than the opposing candidate, and thereby stands a lower chance of success.


3. Mandatory TV time: Brazilian elections, like many across the developing world, make extensive use of television time and public funds as a part of the campaign. As The Economist explains, how much public money and free television time each Presidential candidate receives depends on the congressional strength of his or her coalition and / or party. This would dampen the bullhorn of an outsider candidate with little political infrastructure, who would have comparatively much less television time and funds to campaign with. One caveat is that this does not account for social media, however, of which Brazilians are significantly active relative to other countries.

My hypothesis would significantly weigh the importance of social media, and therefore would more or less nullify the importance of this impact.



It will be interesting to see how things proceed from here – how the populace’s disposition changes and how the market reacts as the elections come closer. The Brazilian Real exchange rate to the Euro and Dollar have moved more-or-less in lockstep up until recently, which indicates to me there is a “Trump” effect from his actions to strengthen the Dollar, as well as a broader consensus on the precieved weakness of the Brazilian economy and / or the ongoing political uncertainty. Personally, I expect there to only be further devaluation in the coming months (NB: I’m far from a knowledage FX trader / investor).

brleur brlusd

Source: Yahoo Finance


One wild card to add to the mix is the upcoming World Cup this summer, which will likely serve as a distraction that will keep the media and average Brazilian away from the political newscycle for the majority of the summer. I’m curious to continue to track this election over the next few months, and am excited to continue to document things as they evolve.

Brazilian Corruption and the 2018 Elections

Over the weekend, the New York Times Magazine asked whether the recent anti-corruption surges in Brazil, South Korea, and South Africa will have a sustainable, ongoing impact on the government and economies of these countries, and their regions more broadly.

The article presents an even handed appeal: while there are certainly reasons to be cynical (among them, flagrant corruption and nepotism at the highest levels of US government, as well as recent extrajudicial actions taken by China and Saudi Arabia in the name of “anticorruption”), there is reason for hope as well, most notably in the decline of the “fatalism” surrounding corruption long felt by citizens of these countries.

Here in Brazil, corruption is far-and-away the number one concern raised by Brazilians in my unscientific polling of Uber / Taxi drivers, especially in relation to the upcoming October / November Presidential elections. Brazilians have long grown accustomed to the types of “inefficiencies” surrounding the allocation of public resources, until recently the fight against corruption, enshrined through the Brazilian proverb of “rouba mas faz” ([s]he steals, but [s]he gets it done) had many antagonists, but very few protagonists.

Considering the noise I’ve grown accustomed to in the run-up to US elections, I have been incredibly surprised by the minimal amount of campaigning and media attention given to Presidential aspirants, now less than 5 months leading up to the first round of elections. Since Dilma Rousseff, Brazil’s last democratically-elected President, was elected in 2014, there has been a very public impeachment (read: hers), her predecessor, Lula da Silva, has been arrested and placed behind bars, and more broadly the public-private backbone of some of Brazil’s foremost companies (Odebrecht, JBS) has been blown open. The country has been ensnared in a real life soap opera that has already been dramatized into a movie and television series, yet there seems to be no outspoken connection by any of the candidates being drawn between this hugely dramatic shift and the upcoming the Presidential elections.

Considering the primary preoccupation of many Brazilians, one would consider Sergio Mora, the Brazilian federal judge who has become the public face of the Lavo Jato scandal, an incredibly viable and popular candidate. However, to date there has been no formal indication that Mora will run, as critiques of the politicization of his judicial position have partially drowned out the incredibly herculean task already achieved by Mora and his team in rooting out much of the power structure behind the Lavo Jato scandal. Similarly, Joaquim Barbosa, the former Chief Justice of Brazil, was seen as a candidate with little chance of attaining the Presidency before he formally bowed out of contention this week.

Instead, the Brazilian military, whose history of deposing a Leftist leader in the face of inflation and lagging growth presents a troubling precedent for the health of Brazilian democracy, has returned as a loud and problematic voice in the battle against corruption. In the lead-up to Lula’s arrest, in which doubt was cast as to the conviction of the Brazilian judiciary and police to carry out the arrest in the face of resistance, the Commander of the Brazilian Army, Eduardo Villas Bôas, took to Twitter to express the views of the broader Brazilian military and its role in preserving “respect for the Constitution, social peace and democracy.” Given the military’s historic role and the relative youth of Brazilian democracy, this strikes me as a disturbing signal sent to the broader Brazilian population of the military’s ongoing vigilance and propensity to step in the event that the situation does not improve.

Despite the well-documented abuses of the Brazilian military, it feels like there is a bit of nuance amongst the Brazilian populace in their attitudes towards the military, and its historic role in creating efficiency and stamping out corruption. While the tweets by the General were subject to rebuke, it doesn’t seem as if there is a broader concern of the military’s outspoken stance. The military seems to be considered a “last resort,” or a backstop against an incompetent or irrevocably corrupt democratically-elected candidate. How far Brazilians are willing to go in to ensure that corruption is rooted out remains to be seen. One troubling indicator is the continued polling prominence of the right-wing candidate Jair Bolsonaro, now the leading candidate following the arrest of Lula. Bolsonaro is primarily known for his status as a former military officer, and is largely seen as incorruptible, above reproach, and coming from outside the system. This may prove to be the keys to his success, despite his long-documented streak of hateful and ignorant views that urban Brazilians seem to think make him unelectable (sound familiar?).

As financial markets advisor Sergio Goldman wrote today in a Linkedin post, there seems to be little innovation or enthusiasm amongst the Brazilian Presidential candidates so far. Whether this is due to the fact that the television campaign season doesn’t begin until August, or that there are still inspiring candidates like Mora yet to announce their intentions, remains to be seen. Regardless, it will be very interesting to view firsthand the anti-corruption mandate handed down by the Brazilian populace following the October/November elections, and any further actions taken by Brazil’s next President as a result.

Coffee / Café

Sometimes, some of the more obvious ideas or conclusions can take a long time to come together and congeal in one’s head. For the past several years, I have increasingly grown interested in coffee: its cultivation, importation, and ultimate business around its consumption.

In college, I graduated from drinking Wawa’s French Vanilla coffee, usually imbibed with a further sweetener (though Wawa has now released a [surprisingly good] Kenya AA premium blend) to drinking coffee black. In State College, I increasingly sought out different types of coffees at various local coffeeshops: the dark roasted coffee served at Irving’s and the acidic and always-interesting coffee at Saint’s Coffee.

Arriving in Philadelphia post-college, I continued to indulge this nascent interest, buying an Aeropress and manual burr grinder for home brewing and exploring Philadelphia’s upstarts (Ultimo Coffee) and classics (La Colombe, continuing to take over the world) in the Philly coffee scene. These coffee habits went on the road with me as well: as I traveled around the country for work (oftentimes at the expense of my sleep schedule), I would survey the city’s area coffee shops to learn about the different coffees offered and any quirks associated with the shop, such as the seemingly all-mustachioed baristas at Intelligensia in Chicago, or Philz baristas pouring the brewed coffee into the cup at an almost comical, hibatchi-chef-like distance (which I was informed helps to bring out the scent / character of the coffee).

My move to New York helped solidify this passion – while Oslo was my “local” neighborhood spot, I traveled up to Greenpoint to try the infamous $10 coffee at Budin, and sought out different coffees brands, blends, and origins at coffeeshops across New York to consume at home or at their shops.

During this 5-year span, the market for single origin coffees and the coffeeshop chains serving these coffees (Blue Bottle, Bluestone Lane, Blue-something-else), exploded. It seemed like people’s coffee consumption habits changed dramatically (remember when Keurig was going to take over the world?) and our pallets became more accustomed to the wide variety of origins and extraction methods beyond the humble 12-cup Black & Decker.

My coffee crazy was cemented by a trip to Japan, where like many other non-Japanese innovations, coffee has been elevated into an art form. Coffee was an essential part of my daily routine in Japan, and served the all-important role of providing me with much-needed respites, and an essential energy boost during 15 mile+ days, as well as providing me with a survey of some of Japan’s foremost cafes: including the legendary Café de l’Ambre (Ginza), with its vast library of bean offerings (pic), and Norwegian Fulgen Coffee (Tomigaya) in Tokyo, Kurasu and Vermillion Cafe and the legendarily gorgeous % Arabica situated right off the Katsura River in Arashiyama in Kyoto, and LiLo Coffee Roasters in Osaka. The Japanenese clearly held coffee — its cultivation, the best extraction methods, and the ideal conditions to serve it — in incredibly high esteem and with an obvious level of respect.

This slideshow requires JavaScript.

Brazil, the world’s largest exporter of coffee, has a much more nuanced relationship with coffee. Colloquially, Brazilian coffee is served sweet, oftentimes with mounts of sugar or the eyewatering-sweetness of the eye-dropper ‘adocante’ to a single cup of espresso-sized “cafezinha.” This has taken the form of a saying:

“Negro como o diabo, quente como o inferno, puro como um anjo e doce como o amor”

Black as the devil, hot as hell, pure as an angel and sweet as love.

Economically, the story of Brazil’s coffee trade has been a longstanding saga of export-based commodity dependency, and a strong desire to seek out industrial independence and make themselves less beholden to exogenous global shocks. Coffee production exploded in Brazil in the 1800s, accounting for 75% of all growth globally and unseating the slave-labor dependent sugar and cotton to become 60% of all Brazilian exports by 1913.


Following the winding down and eventual end of the slave trade in Brazil, the capital accumulated by slave owners was used to fund banks, invest in railways, and build coffee plantations. Railways and coffee grew hand in hand, as the coffee fazendeiros, or plantation owners, saw the railways as a necessary investment to replace slave-abetted muleteers, creating necessary infrastructure in the country and creating Brazil’s global coffee trade.

In the process, the plantation owners grew into a powerful political interest, and played a formative role in the development of Brazilian economic and social policy in the states of São Paulo and Minas Gerais, whose wealth concentration and disproportionately strong indicator performance continues to date. As Brazil’s share of the global coffee trade increased, coffee production began to dictate monetary policy in Brazil as well. Brazilian finance ministers pursued a policy of valorization to stabilize, subsidize, and insulate Brazilian coffee barons from global shocks in price. Brazil’s coffee trade was an extremely important aspect of Brazilian historic inflation, and its turn to state-led industrialization to reduce Brazilian dependence on extremely expensive imports given the relatively expensive, propped up currency.

In the 1910s, this resulted in a price “floor” being created, whereby the Brazilian government would buy up and store the depressed coffee crop. This only served to increase Brazilian dependence on global coffee whims, as it prevented the fazendeiros from pursuing other more lucrative agricultural opportunities in favor of the artificially inflated coffee price.

During the global depression of the 1920s and 1930s, the global price of coffee crashed as incomes and demand fell. This resulted in an overall reduction of Brazilian exports by 60%, and leading the Brazilian government to buy up and destroy 78 million bags of coffee between 1931 and 1044 to try and push up the price, as well as wrote off the growing debts of the prominent and politically-powerful coffee fazendeiros.

Brazilian coffee exports as share of total exports valueCoffee exports as share of total exports value, 1928-1940

from The Great Depression in Brazil

Through the 1960s, Brazil’s dominant share in the global coffee market remained, and the cost of producing coffee in Brazil increasingly determined the global price. This prevented Brazil’s finance ministers from devaluing the Brazilian currency, the cruzeiro, making other imports more competitive, lest they displease the all-important coffee fazendeiros.

Today, coffee plays an important, but significantly less prominent role in Brazilian agricultural production, and its economy. It remains the home of much of the world’s “commoditized” coffee, i.e., the coffee that you find with ubiquitous brand names like Folgers and Nestle. Whereas Brazilians has seemingly resisted the entrance of Starbucks (I remember there was just one, comically overpriced Starbucks on Avenida Paulista when I first arrived to Brazil in 2011), today Starbucks’ aggressive expansion has resulted in the coffee chain popping up in shopping malls all around the City. Local chains like Suplicy, focused on attentive service and good coffee, have sprung up, and there is even an upswing in “premium” coffee-focused shops serving single origin coffee with your choice of extraction methods, such as Takko Cafe and Um Coffee Co.

These consumption habits and related geekery still exist on the fringes of Brazilian society (I don’t think home brewing coffee is much of a thing in Brazil, aside from Nespresso-like dispensers), but it’s growing in popularity, and given Brazil’s propensity to oftentimes be 3-5 years behind the Americans in the adoption of popular habits, I could see coffee’s popularity as an expensive, premium diversion only increasing over the next few years.

For my part, I plan to connect the dots between my coffee interest and time in Brazil to learn as much as I can about coffee production and the broader trade as it is practiced today. While a trip to Colombia’s Zona Cafetera in December whet my appetite for the beauty and allure of coffee-producing regions, I hope to visit coffee-rich areas within the statest of Sao Paulo, Espirito Santo, and Minas Gerais (and maybe others!) to learn about mass production and smaller concerns. Simultaneously, I hope to continue developing my pallet for different coffee origins and flavors, though I’m certainly not aspiring to reach the heights fo the sommelierlike q-grader status. From there, who knows where this journey will take me. For now, I’m enjoying the recent connecting-of-the-dots, and as always, am eager to learn more.

Note: Brazilian coffee-related history pulled from Michael Reid’s useful (and compact) history of Brazil: Brazil: The Troubled Rise of a Global Power.


Saturday in Rio

As alluded to in a previous entry, one of my favorite ways to get to know a city is through its food, and the local bars and restaurants that lend the city a great deal of its character and charm. In advance of any trip, I normally try to solicit food recommendations from locals or past travelers, and tend to keep a travel guide handy in the even that I find myself without a good option nearby. From there, it’s usually a vague plan that involves a lot of walking, and some meals interspersed in between.

My Saturday in Rio was no exception. I started the day in search of one of my favorite Brazilian exports, açai, the delicious berry often served frozen and pureed with sugar or the sweetening guarana syrup. More seasoned palates than mine have likened the taste of açai to chocolate, with a less heavy / more refreshing aftertaste. As an added bonus (I would eat the stuff on taste alone), açai is purported to have health benefits and be a natural source of energy, though I’m still unclear how much marketing or legend has seeped into this popular conception.

Açai is found in the rainforest-laden, Amazonian region of northern Brazil, and is notoriously difficult to maintain and preserve. This accounts for its absence in restaurants across the world, aside from the occasional comically overpriced version found in urban health food stores. In search of a more authentic style of açai, I walked up from the Botafogo neighborhood I was staying in to the adjacent Flamengo neighborhood and the lunchonette (lanchonete, in Brazilian Portuguese) Tacacá do Norte, which specialized in food from in the Brazilian state of Para, (fact about the Amazon River).

I ordered my açai with very little sugar, which I soon noticed was the way that most of the other morning patrons were ordering it as well. The açai tasted considerably more like the terrain it was picked from than the sugary, sweet version that I was accustomed to, but it retained the essential flavor that makes it so popular here in Brazil. To quell my curiosity more so than accompany my açai, I ordered the house specialty, the tacacá soup. The soup is principally made from tucupi, a yellow sauce of wild manioc root, which seemed to be an accoutrement on nearly everything the patrons were eating, including the acai, and came served with a collards-like stewed green called jambu leaves at the bottom, and some shelled shrimp floating on top. Tacacá is most notable for its distinct taste: a tart sweetness (similar to some Filipino dishes I’ve had) albeit a sweetness that leaves your mouth feeling slightly numb after. The soup gave me the sensation of a low-intensity shot of novacane at the dentist’s office. Though it was better than it sounds, I doubt I would rush to order it again.


tacaca soup_2.jpegTacacá Soup, the specialty of Rio’s Tacacá do Norte lanchonete


After, I made a brief visit to the Museu da Republica (Museum of the Republic) housed in the Palacio de Caetete, the one-time Brazilian “White House.” The museum’s main attraction is the third-floor bedroom of Brazilian President / autocrat Getúlio Vargas, the location of his infamous suicide. The room was eerily preserved to look and feel the same as it was on that date in 1954, including the sparse furniture and the gleaming revolver (under glass) that he used to dramatically shoot himself in the heart. For whatever reason, the accompanying will, in which Vargas preserves his populist appeal for eternity by stating: “if the birds of prey want someone’s blood, if they want to continue bleeding dry the Brazilian people, I offer my life in holocaust” was just a facsimile – maybe the original is kept in one of Brazil’s many history museums. Adjacent to the Palacio are stately gardens, with less shade than you’d expect to protect its current visitors (and the Brazilian political elite, at one point), from Rio’s sweltering heat.

getulio_revolver_2The revolver used by Getulio Vargas to kill himself in 1954, at the Museu da Republica in Rio de Janeiro


From there, I set off for another museum / park combo, climbing up one of Rio’s many steep-inclined sets of concrete steps to reach the Santa Teresa neighborhood, and the Museu de Characa de Ceu and Parque das Ruinas (Ruins Park.) The museum had a beautiful collection of paintings capturing the city of Rio de Janeiro from its colonial origins to more modern depictions of the city. My favorite painting was titled “The Big City,” and I think it managed to more capably depict the improvised, chaotic nature of Brazilian cities better than any photograph.


chacara de ceu_old_2.jpegA painting of Rio de Janeiro in an early stage of development at the Chacara de Ceu Museum


BE468A73-C32A-4F2F-B2F6-83F41CFD7C61The view from the Parque das Ruinas provides an interesting comparison to the painting


The great cityThe aptly titled painting The Great City, depicting modern day Rio de Janeiro, at the Chacara de Ceu Museum


Santa Teresa was certainly the most touristy place I visited in Rio – it has the feel of a pacified favela that has since become a popular haunt for visitors to Rio curious about the commotion taking place above the beautiful coastline of beaches and development. I eventually reached the Bar do Mineiro, a restaurant recommended to me for its famous feijoada – a black beans and meat-based stew that has its origins in the cuisine of Brazil’s slave population that has since become Brazil’s national dish, a testament to the strong and ongoing influence of Brazil’s immigrant population on its cultural development. Along with Wednesdays, Saturdays are one of two days of the week that Brazilians indulge in the meat-heavy, fat laden stew, though there are certainly places that serve feijoada any day of the week. Mineiro’s feijoada did not disappoint – it was truly among the best I’ve ever eaten, and the open-air, informal boteco (bar) atmosphere adding to the experience. While the serving “for one,” served with rice, Brazilian greens, and the ubiquitous manioc flavored flour called “farofa,” is normally well beyond the reaches of my appetite, in this case I managed to finish the whole serving.


feijoadaThe hearty feijoada stew, a specialty of the Bar do Mineiro in Santa Teresa, Rio de Janeiro


From there, I made my way down to Copacabana beach via the surprisingly well-run metro system (one of the few useful vestiges of the investments made in the froth-filled run-up to the World Cup / Olympics). After all, a day in Rio without at least a passing acknowledgement of the beach almost seems like a wasted day. Walking down the Copacabana promenade towards Ipanema, I was struck by just how unique, and how much of an international treasure Rio is. With the exception of Tel Aviv, whose beaches are mostly cordoned off by private beachside hotels and developments, I can’t think of a major international city which such a gorgeous and attractive beachfront. Along shoreline that stretches south x southwest across Copacabana, Ipanema, and past Gávea, Rio’s beaches are open and accessible to the public, and one can even rent their own chair and umbrella for the day at any of these beaches for less than $5. Hungry, thirsty, or under-adorned beach goers need not fret either – the beach is teeming with enterprising vendors selling everything from the Brazilian version of grilled cheese to fruity cachaça-based caipirinhas, and there are beach posts every km or so with restrooms, showers, and cafe fare.

I spent the next 2-3 hours sitting by Ipanema’s Post 8, which offers a beautiful view of the Pão de Açúcar Mountain and the sun setting over the mountains. Along with my book, I was able to people-watch my fellow beach-goers, with plenty of diversionary entertainment to be had. Brazilians are truly master beach-goers – they seem to manage to make the beach, and whatever space they have around them, into their temporary home, with the oftentimes revealing thong bikinis and ‘sungas’ (speedo-like swimsuits) testament to the comfort that Brazilians preternaturally feel on the beach.

From there, I made a quick stop at the flagship of the local Livraria da Travessa bookshop, which had a bit less majesty, but was no less functional and interesting, than the fantastic Livraria Cultura outpost in Central Rio. I bought a copy of Bolaño’s Distant Star at the recommendation of a friend who is writing about Bolaño for his doctoral thesis, before yet another meal to cap off my day. Somehow, the exercise and activity of a day filled with possibility manages to be a major appetite generator.

I ended the day at Bar Lagoa, another well-known restaurant recommended by a local in advance of my visit. Worried about my post-beach attire (namely my flip flops, which I think is pushing it, even for Brazil), I changed into sneakers before entering the open air bar adjacent to Rio’s Lagoa Rodrigo de Freitas. The first page of the menu explained the old-style feel of the restaurant, replete with waiters dressed in coats and ties. The restaurant was at one time a haunt for German immigrants to enjoy fare of their Fatherland and obligatory accompanying lager. The restaurant was initially called Bar de Berlim (Berlin), before changing its name during World War II (but unlikely changing the allegiance of its attendees), as Brazil was the only South American country to participate (fighting for the Allies). I was charmed by the prospect of eating German fare in such a tropical setting, and opted for an afpelstrudel and schlag (cream) to cap off my day, as well as a couple chopp (lagers), with the obligatory top quarter of the glass filled with a refreshing froth.


apfelstrudel.jpegBar da Lagoa’s apfelstrudel, with a healthy portion of schlag / crème


In all, it was an exhausting but rewarding day (as the best ones are), without incident. However, it must be stated that on that very Saturday, eight people were killed by the police in Rio’s Rocinha favela, an upsetting and important reminder that Rio continues to be in the midst of a violent war between the city’s police force and its poorer citizens. The activities of the day, in stark contrast to the events taking place miles away, provide a useful juxtpoisition of the very real contradiction that the city of Rio de Janeiro present to its tourists and diverse inhabitants.