Economist 3/18/16

  1. On March 17th Luiz Inácio Lula da Silva, Dilma Rousseff’s predecessor as Brazil’s president, was sworn in as his protégée’s chief of staff—a position she once held in his administration. He was in office for a mere matter of hours. A federal judge suspended the appointment on the same day, alleging what many Brazilians had suspected—that Lula was only offered the position to shield him from prosecution.Investigators have been inquiring into Lula’s possible role in a multibillion-dollar bribery scheme centred on Petrobras, the state-controlled oil giant, which appears to have begun while he was in office from 2003 to 2010.In a separate case, state prosecutors in São Paulo want him jailed while he is investigated for concealing the ownership of a seaside property. That case has now been handed over to Sérgio Moro, the crusading federal judge overseeing the Petrobras probe.A phone conversation between the former and current presidents, intercepted by police and released to the press, seems to bolster the case that she hired him to protect him from prosecution.
  2. Ms Rousseff’s survival in office will depend largely on whether the centrist Party of the Brazilian Democratic Movement (PMDB), led by the vice-president, Michel Temer, remains in the coalition. The PMDB has given itself until mid-April to decide whether to stay. Public opinion—and increasingly that of the business elite, part of which is close to the PMDB—are pushing the party towards the exit.Indeed, the only way to appease the PMDB—and keep Ms Rousseff in power until her term ends in 2018—may be to strike a grand bargain on fiscal reform. This is what the party claims to want. But even an act of economic statesmanship might not save the government.
  3. A DECISION this week by Moody’s, a ratings agency, to downgrade Mozambique from a lowly B2 to a dismal B3 has cast a pall over one of the world’s poorest countries.Two-and-a-half years ago, Credit Suisse raised $500m on behalf of Empresa Mocambicana de Atum (EMATUM), a newly created state-owned tuna-fishing company. A Russian bank, VTB, raised another $350m. The cash was supposed to pay mainly for a fleet of fishing boats. Instead, it was diverted into an array of other purchases, including security equipment. The company said it hoped to catch 200,000 tonnes of tuna a year, but is catching barely any fish at all.Meanwhile, the word among businesspeople in Maputo, Mozambique’s capital, is that the three main companies involved in the biggest gas projects—Anadarko from Texas, Italy’s ENI and South Africa’s Sasol—do not expect the gas to start flowing fully until 2023.The political mood has turned steadily more poisonous since the presidential election of October 2014, which was won by Filipe Nyusi, the candidate of Frelimo, the party that has ruled since independence in 1975. In a poll that the opposition said was unfair, he officially won 57% of the vote, against 37% for Afonso Dhlakama, who has led the Renamo party, often as a rebel guerrilla force, for more than three decades.
  4. ON MONDAY March 21st, Barack Obama will become the first sitting American president to visit Cuba since Calvin Coolidge in 1928. Mr Obama’s trip is a symbolic culmination of a process of rapprochement that he and Raúl Castro, Cuba’s president, began in December 2014. Since then the United States has eased the half-century-old trade and travel embargo on Cuba, removed the country from its list of state sponsors of terrorism and restored diplomatic relations, cut in 1961. America’s government eased restrictions further on March 15th, allowing its citizens to travel to Cuba on their own for “educational” purposes and Cubans to be paid salaries in the United States.Cuba is visibly changing, in part because of economic reforms begun by Mr Castro before his accord with Mr Obama. But the changes so far have done more to enhance the lifestyles of a few than to bring freedom and opportunity to the majority of Cubans.
  5. THE British government currently slaps a 5% Value Added Tax (VAT) on sanitary products. But some view the “tampon tax” as an affront to women, who have little choice but to bear the burden of the levy. The government has been prevented from reducing the rate to zero by European Union rules, which limit how much countries can lower VAT rates on some goods.But on March 17th, George Osborne rummaged around for a rabbit in his post-budget hat, and revealed progress towards a new VAT arrangement with the EU that would give him the freedom to ditch the hated tax.Scrapping the tax makes for more palatable politics, but leaves economic questions. Working out a rationale within the British system of VAT is a fool’s errand; products that enjoy the reduced rates are meant to be necessities, but the definition of a necessity is loose. Tampons would join things like ostrich meat and helicopters in the zero rate category, whereas toothpaste and toilet paper will face a rate of 20%.The bigger question is whether VAT is the best way to redistribute. One vision of an ideal tax system applies a uniform rate of VAT on all final consumption, and then uses the direct tax and benefit system to do the heavy lifting when it comes to redistribution.

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