Showdown in Brazil
Lula Gets Convicted

Brazil’s former President Luiz Inácio Lula da Silva has been convicted for corruption and sentenced to prison for nine and a half years. The Financial Times notes that markets are loving the news:

While the populist leader remains free pending appeal, the ruling threatens to eliminate him from the running for presidential elections next year, an outcome that pleased markets.

The country’s benchmark Bovespa stock index rose 1.6 per cent on the news, while the Brazilian real extended its earlier gains to trade 1.4 per cent higher at R$3.2079 per dollar — a two-month high.

“You are removing a candidate who definitely the market did not want to see there,” said Alberto Bernal, chief emerging markets and global strategist at XP Securities in Miami.

Many on the Left will believe that the court is acting politically. Over the last few years it has become clear that almost every member of the country’s political establishment is corrupt, Left, Right and Center. Paradoxically that can lead voters to discount corruption allegations: If they are all crooks, why not pick the crooks on “your” side?

Lula remains the most popular politician in a divided country. The establishment fears, probably with good reason, that a new Lula administration would be even more statist and corrupt than before. But if much of the population believes that he is being unfairly punished for sins that all the other politicians commit, jailing Lula or banning him from the next election could bring on a crisis. It is not clear how long the fragile consensus behind Brazil’s legal and political institutions will last under these unprecedented circumstances.

Brazil, with roughly half the population and half the GDP of all of Latin America, is floundering badly. Stability, prosperity and democracy in Brazil are more important than ever as Venezuela edges toward civil conflict. This story is worth following.

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