Brazil’s Reform Stalwart Is Losing Its Edge, Says Ex-Central Banker

  • Reforms Brazil needs won’t come from PSDB party, says Franco
  • Political start-ups may become tomorrow’s Google, he says

The political party that for decades has been the standard-bearer for pro-market reforms in Brazil is losing its resolve just before crucial 2018 elections, one of the country’s most prominent economists and former central banker said in an interview.

Gustavo Franco during an interview in Rio de Janeiro, on Dec. 6.

Photographer: Dado Galdieri/Bloomberg

Gustavo Franco, one of the fathers of the nation’s successful economic stabilization plan in the 1990’s, became the Brazilian Social Democracy Party’s highest-profile apostate after defecting in September. His former PSDB party, he says, is wracked by irreconcilable divisions as it heads into a Dec. 9 convention to anoint a new leader and a presidential candidate -- it’s best chance to iron out differences before elections.

“The PSDB didn’t fully embrace the neo-liberal reform agenda; it wants something more collective, ecumenical, and so winds up more ambiguous,” the Harvard-trained economist said in Rio de Janeiro. “Society expects more from the next government and I think the opportunity for reform deserves a broader approach. But it won’t come from the PSDB.’

The nation’s third-largest party in Congress has been mired in indecision this year. While part of the ruling coalition, PSDB members have waffled on whether to support a government proposal to overhaul the pension system, a key part of Brazil’s efforts to put its finances in order. Its leadership has changed hands three times this year as Aecio Neves, who lost the 2014 presidential election by a razor-thin margin, was implicated in a corruption scandal.

Sao Paulo Governor Geraldo Alckmin, a seasoned yet less colorful politician who’s expected to be formally announced as the PSDB president this weekend -- a step that all but secures the party’s nomination -- trails so far behind in opinion polls that he would have a hard time making it to a second-round vote. That would be a blow to a party that has either won or placed second in every presidential election since 1994.

Novo Party

It’s no wonder Brazilians now see the PSDB as a “nebulous” party that has become a “prisoner of its ambiguities,” Franco said at the Rio headquarters of the party he has just joined -- Novo, which means “new” in Portuguese.

Novo’s office in the upscale Ipanema neighborhood has the air of a tech start-up: a handful of employees tap on their laptops under a whiteboard with scribbled slogans like “Wake up now!’’; two framed abstract artworks look like they may have come with the space; behind the reception desk there’s no secretary, not even a chair.

Novo became Brazil’s 33rd party in 2015 with the goals of reducing the size of the state, cutting the tax burden and improving public services. Its presidential hopeful is a board member at Banco Itau BBA. Novo has some 14,000 members, according to the electoral tribunal, 100 times smaller than the PSDB. 

But Franco isn’t discouraged. He said small parties in association with blossoming civil movements will disrupt elections-as-usual and form an influential congressional bloc to push economically liberal and modernizing reforms. Besides that, he added with a slight laughter, “every day another one comes’’ from the PSDB to join the ranks of new groups like his Novo party.

Some of those parties are “beginners, start-ups in the political world,” he said. “But a start-up can be the Google of tomorrow, no? We’ll see in 2018.’’

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE