Brazil elections: Can a new president save the economy?

As Brazilians head to the polls to elect their next president, many worry about the country’s crippled economy and whether a new government will be able to turn the tide.

Brazil is Latin America‘s largest economy and the “B” in the “BRICs”. When President Luiz Inacio “Lula” da Silva left office in January 2011, Brazil was widely regarded as Latin America’s economic miracle.

Today, it’s a country struggling with recession and high unemployment where there is widespread unhappiness at the deteriorating quality of life. And when the country’s national museum tragically went up in flames last month, many saw it as a metaphor for their own struggles.

Inequality is one of the problems: Brazil’s six richest men have as much wealth as the poorest 50 percent of the population, which stands around 100 million people, according to Oxfam International.

Rampant corruption is another issue, and a multi-billion dollar bribery probe called Lava Jato or Car Wash has highlighted the kind of special treatment given to the few.

Reform is needed to bring down debt, tackle violence and fix the unjust public sector pensions system. Civil servants often retire in their early 50s on full pay, yet those born in the favelas (slums), are without access to basic services, according to Al Jazeera’s Lucia Newman.

Northeastern Brazil is heavily populated, which makes it a magnet for politicians seeking election. “In this slum there’s no sewerage, running water or other basic services … 60 percent of people in Alagoas live in poverty. Their needs are not great and their pockets so empty, that they’re easy prey during election season when politicians come here and buy as many people’s votes for as little as $10,” reports Newman.

Latin America economist Edward Glossop of Capital Economics explains that to put Brazil back on track economically, “the main thing investors are looking for is pension reform and deep fiscal reform … I think future governments will struggle to push this through because it’s highly unpopular with the electorate. And also, the reform requires 3/5 majority in Congress and Brazil’s Congress is massively fragmented.”

On the other hand, “they’ll probably get through some spending cuts which will help to narrow the budget deficit and tide things over in the coming years. But sooner or later, you need some structural fiscal reforms to really bring in that budget deficit to sustainable levels.”

According to Glossop, Brazil’s digital economy won’t be able to help pull the country out of recession – unlike in China and other parts of Asia.

“In places like Brazil, you really need to get the overall economy investment rate up in order to really reap the fruits of the digital economy.”

“The business environment is still quite bad and the pension system is still quite generous, which means that domestic savings are very low – there’s no incentive to save domestically. Therefore, the investment rate in the economy is too low.”

“The digital economy will obviously grow in importance in Brazil [in the future], but it’s not going to be a key to growth any time soon,” says Glossop.

The cost of medicine

Drug company Nostrum Pharmaceuticals has recently hiked the price of a 65-year-old antibiotic mixture by 400 percent to $2,000 a bottle. Nostrum’s wasn’t the only price increase last month; it was one of 60, according to Wells Fargo.

From China to the United States, drug price hikes of essential medicines are coming under political scrutiny. In the absence of a world body deciding on the fair pricing of medicine, drugmakers can boost prices so they and middlemen can make bigger profits. “Each country has its own healthcare system, its own healthcare budget, and by extension its own system of charging or deciding on what a new treatment should be priced at and what is a fair level,” explains Gustav Ando, senior director and vice president within the Life Sciences Group at IHS Markit.

“In many countries, it’s a very heavily regulated market and it’s difficult to charge excessive prices. But in other markets, you have a different system and they let a free market decide what a fair price is; and in which case, there are multiple layers of actors who decide on the price – starting with the pharmaceutical company itself proposing a price, then having payers’ insurance companies and other bodies that then weigh in to decide whether this is actually a fair price. Then, there could be a negotiation based on that.”

Digitalisation changes “almost everything with healthcare”, according to Ando. “It means that you’re able to conduct potentially more efficient clinical trials, you’re able to more easily identify potential molecules that you can target and mechanisms of action that you can target all the way through the actual delivery mechanism of a treatment … the level of innovation is also factored into the price of a drug,” says Ando.

Also on this episode of Counting the Cost:

Yemen economy: Yemen‘s southern separatists have called for more demonstrations over the collapse of the currency. The southern Transitional Council is piling the pressure on President Abd-Rabbu Mansour Hadi. They blame him for the economic collapse after a four-year war with Houthi rebels, as Bernard Smith reports from Djibouti.

China Fan Bingbing: One of China’s top actresses, Fan Bingbing, has been ordered to pay a $129m tax bill. The actress has appeared in the “X-Men” and “Iron Man” franchises, and is the face of luxury brands in China, as Adrian Brown reports from Beijing.

Trump’s taxes: This week, The New York Times reported on how US President Donald Trump has allegedly exploited the tax system to make millions. The Trump family’s tax affairs are now being reviewed by New York state authorities following the allegations of fraud, as Shihab Rattansi reports from Washington.

Amazon wages: Online retail giant Amazon has announced it will raise its starting wage for US workers to $15 an hour, bowing to criticism over poor pay and working conditions. Workers in the UK will also get a raise, as Patty Culhane reports.