Brazil’s Runoff, Sunak’s UK Vision, Israel’s Elections, and More

MCMAHON:
In the coming week, Brazil holds its runoff in polarizing presidential elections. New UK Prime Minister Rishi Sunak, seeks a path to stability and Israelis vote in another national election. It's October 27th, 2022 and time for, The World Next Week. I'm Bob McMahon, and today we are joined in London by Sebastian Mallaby, who's an author, journalist, and CFRs Senior Fellow for International Economics. Sebastian, it's great to have you back on the show.

MALLABY:
So great to be here, Bob. This run off election is the final round between the top contenders. Leftist former president, Luiz Inácio Lula da Silva and right wing incumbent, President Bolsonaro. Are there consequences for the Latin American region that will hinge on the outcome of this vote?

MCMAHON:
Well, Sebastian, it's a polling situation, which is again and again in democracies, where polls show one thing and then all of a sudden there's a gap. And sometimes the gap is the margin of error of 5%, sometimes it's 7%. We saw this a little bit, even you'll recall several years back with the Brexit vote where it seemed like the pro-remain side was going to prevail. And then the Brexiteers won. And we're seeing this in other places.

So Brazil joins this. Bolsonaro seems to have much more support nationwide than expected. He is also taking strenuous efforts to go after the Lula voters. So who is that? Especially the impoverished community. He's leashed a bunch of social spending and that shows according to the polls, again, polls showed for example, that poorer recipients supporting him that rose to 40% the week after. So Bolsonaro seems to be trying to go after a few weak spots, maintaining support among nationalists, his populist based nationalists. Evangelical voters are big supporting block. People like cattle ranchers seem to be much more in his corner. The country was certainly more stable and in growth pattern, a commodity boom, that helped Brazil during that period.

And that Lula's been marred by corruption, he served some time. If you talk about it in terms of let's say, the stewardship of the Amazon rainforest is in Brazil, and Bolsonaro has opened it up for exploitation. He's accelerated the clearing of rainforest. The record shows a clear move towards further deforestation, towards accelerating deforestation, which was something that had been slowed down under Lula and who had tried to institute a more environmental friendly, sustainable development approach to the Amazon. Obviously Amazon enormously important as a resource base and for the country's prosperity, but also as I said, as a steward of climate, the rainforest has been cited as the so-called lungs of the earth.
There's a lot of concern that there's going to be a tipping point reached, Sebastian, where the rainforest becomes a net carbon emitter with the changes and not a carbon sink that had been relied on. So that's just one in terms of region, as it pertains to a climactic issue. We would not expect Bolsonaro to be expanding or helping to build democracy in the region, among other things. At a time when Latin America is going through a bit of shaky transition in a number of places, it must be noted though, in some places the democratic experiment seems to be working well. Let's look at Chile's experiment, for example.

MALLABY:
And you're talking about shaky, we're entering a time when globally, financial conditions are getting tougher. Interest rates are rising around the world. Capital is going to be harder to come by.

MCMAHON:
Lula in some ways, tries to emphasize stability. Certainly he does not play from the populous playbook. He comes from a leftist, working class background. But also if you look back, had a pragmatic streak as well, and I think it seems to be a sense of both the governance of Brazil, as well as the stewardship of the economy writ large. Lula might be a safer bet. Bolsonaro has, let's just look at his response to COVID. There was the denial of certain public health approaches that resulted in health officials leaving his administration. And really rampant outbreak in the country, very high death toll, one of the highest in the developed world, or the developing world, I should say.

And we've seen this problem of Bolsonaro responding piecemeal to crises, but a bigger sort of stable master plan, not in the offing. So I think Lula could be seen as a safer bet. Again, it's a country that's incredibly divided and for reasons that we've seen play out in some ways in other parts of this country, with some more striking parallels with the US perhaps, that other countries.

MALLABY:
President Trump, of course, was always seen as a ideological fellow traveler with President Bolsonaro. How does the Biden team see this contest, do you think? Is there any, even if not publicly articulated, do you think there's a preference?

MCMAHON:
Very good question. Yes. Bolsonaro was dubbed the Trump of the Tropics. Clearly there was an affinity between the two leaders and some similarities. Again, Bolsonaro following the Trump playbook on injecting doubt to the electoral integrity of Brazil, especially if he loses. So that certainly worries people in the Biden administration, which want to see orderly transitions of power and would like to see a Brazil that is a bit more predictable. Again, whether it's stewardship of the rainforest, as I mentioned. Or as a partner, as a reliable partner in the region. Lula had his issues with the US previously as well. But again, I think that there is a sentiment that he would be a more stable partner for the US, Sebastian.

Well, Sebastian, let's deal with some other political turbulence and that would be in your own country. We've had a tumbling pound, Liz Truss leaving office after just 49 days. The United Kingdom is weathering one of its biggest political storms, and earlier this week the Conservative Party selected the former Chancellor of the Exchequer, Rishi Sunak, to be the new Prime minister. So what should we be looking for with Sunak at the helm?

MALLABY:
So Bob, the good news is that the markets are in better shape. Even before the elevation of Prime Minister Rishi Sunak, his predecessor had been forced to get rid of Chancellor of the Exchequer, the finance minister, and had appointed a safe pair of hands in the form of Jeremy Hunt. And as a result, the currency of the UK pound had gained some value and the long term cost of borrowing for the government had come down from a very elevated level. And Sunak's installation as Prime Minister has sort of consolidated that favorable move in the markets. Right now, the pound against the dollar is kind of back to where it was at the start of September. And the government's long term borrow costs, as I say, another key measure of confidence in the UK, is also in better shape. During the panic of the last month or so, in long term, 30 year government bond hit almost 5%, and now it's fallen back to a bit over 3.5%. So that's definitely progress.

We have this trust more on premium, pushing up government borrow costs. So now people are talking instead about the dullness dividend from the Rishi Sunak, Jeremy Hunt combination. But now all eyes are on the November 17th autumn statement or kind of mini budget that they're going to come out with, which will have to persuade that the UK national debt is on a sustainable path. There will be lots of options, ranging from spending cuts to tax hikes to address Britain's productivity growth problem, which been going on for maybe 10 years. The cutting of Britain from its key trading partners. And so I think the government, in order to defense against the financial markets, it needs to pay offense.

MCMAHON:
Sebastian, we've heard all sorts of superlatives attached to Sunak's coming into office, youngest, first South Asian descent, and so forth. It is pretty symbolically impressive, but at the end of the day, I think November 17th looms as a very important date and maybe not make or break, but something really consequential for his administration. What should we be looking for in terms of a message, a signaling from him, ahead of that? So maybe he doesn't run into the problems that Truss ran into right away?

MALLABY:
Well, avoiding what Liz Truss did is a low bar because she was so spectacularly unsuccessful, deemed by some people to have been the least successful Prime Minister in UK history and certainly the least successful per day, more damage per day. That's her great claim to infamy. So hopefully, that is such a low bar that we won't even be thinking about that. What Sunak needs to do in the lead up to November 17th, I think, is both to deliver a kind of balanced package of deficit reduction, which should include some tax hikes, some spending cuts. And then in addition, deliver a vision that says to people, "Look, you're going through some tough times now, but there's going to be light at the end of the tunnel because we've got a plan to boost the UK's rate of growth going forward through smart policies around regulation."

MCMAHON:
Sebastian, what should we expect on the foreign policy front? Is it continuity? Is there going to be some sort of gesture whether, in the direction of Europe or the Ukraine conflict, that we should expect from the Sunak government?

MALLABY:
I think it's going to be continuity. Sunak's background is very much on the economic and financial side. Former Chancellor of the Exchequer, before that he worked in finance in the private sector. So he's very much going to own the central issue in his government, which is the economy. And I think he's going to let the foreign policy side and some of the sort of domestic, non-economic stuff continue pretty much as it was. And so that means an intense focus on support for Ukraine, which Britain is very much still united behind. A focus on the US, sort of so-called special relationship, not sure how special it is anymore, but keeping it as good as possible. And so I think that's very much a message of continuity.

Bob, let's switch to a new topic. Like Brazil, Israelis will vote in their national election next week. The election is Israel's fifth in less than four years. Former Prime Minister Benjamin Bibi Netanyahu is seeking to have his right wing block regain the majority. What should we be watching out for in this election?

MCMAHON:
So it is yet another election. First and foremost, we should note, and you can't, I don't think, underscore enough that there is fatigue in Israel with this seemingly endless cycle of elections and really razor thin governing coalitions that can't seem to hold together. The current one fell apart sooner than even it was expected. And so we're looking to see whether that Netanyahu continued to capture the old electoral magic and come up with a coalition that comprises at least 61 seats. And in a number of cases, that has been the number that coalitions have reached. This could involve, again, an appeal to the fringes. In this case, the far right. And so there has been overtures that Netanyahu has made towards far right to the ultranationalist, Itamar Ben-Gvir and his Jewish Power Party.

Netanyahu is running on a platform of restoring national pride, reducing living costs. Israelis are struggling with the cost of living, like many other countries. And what has been a standard platform issue for Netanyahu, restoring personal safety. And we should note that, as we're taping this podcast, the Israeli president is in Washington where they were lauding this deal in which the current Israeli government reached with Lebanon over maritime boundaries. Sort of an extraordinary deal, in a lot of ways. A Lebanese political coalition that itself includes Hezbollah, gave its blessing for it. That fact has raised the ire of Netanyahu and a number of opponents in Israel, that this is providing money for the coffers of a terrorist group that is pointing missiles at Israel. That's yet another issue, a possible wedge issue. We'll have to see whether or not the Israeli voters are concerned enough.

The other thing that's worth pointing out though is that the government that's dissolving had, for a time, included an Arab party. It was extraordinary new step for Israeli politics that Mansour Abbas' Ra'am party was able to join a governing coalition. But there was disillusionment, pretty much quickly set in, especially among Israeli Arab citizens, which constitute about one fifth of the population of Israel, about whether or not Arab communities that have been seen as neglected, in terms of the way their neighborhoods have been supported, whether or not the Arab Israeli community had been supported or not by the government. There was a great sense that this political representation, which as lauded as it was, was not really adding up too much. There's a lot of attention focused on Israeli Arab parties to see if they can be the difference maker in the anything but Netanyahu coalition that is striving to come to power, or to stay in power. Arab Israelis have not turned out in high numbers. They don't seem to be interested in participating in the vote. And so that's going to be something that is going to be watched very closely. We should also note at a time when there's a recurrence of tensions with Palestinians, there's been Israeli strikes in Gaza, almost 50 Palestinians have been reported to be killed in these strikes. With security in the occupied territories being another issue that's come up, we'll see whether or not that resonates both among Arab Israelis as well as Jewish Israelis.

MALLABY:
Well Bob, you've given an extremely good Council on Foreign Relations answer to the question, but I can't resist asking you kind of the People magazine question. Which is at the center of this election, you've got this character Bibi Netanyahu, who has been in power more than out for a hugely long time, who publishes a memoir I think, just in the last few days, which kind of proclaims his success at using the dark political arts and exaggerating external threats and so forth, to scare his people in order to get them to believe in his nationalist agenda. He really is a political survivor, political manipulator. How will history judge him, do you think?

MCMAHON:
Oh, that's a big question, Sebastian, that I would leave to those more expert including our colleagues, Steven Cook and Martin Indic. However, I will say that you point to a really important matter, which is, like anywhere else, savvy political operators can survive and thrive in democracies. And in the Middle Eastern democracy of which Israel is one of, if not the only continuing thriving example, he has been able to survive, partly because he is able to play off the factions against one another. It is interesting to note, if you sort of looked at a time lapse of who was aligned with who, the many parties or factions or individuals that at one point or another were aligned with Netanyahu and then who've had falling outs and so forth, it's revealing of the realpolitik approach to politics in Israel.

And again, the unheard of aspect, at least previously of having an Arab party in a governing coalition, was one of the responses to Netanyahu. Because not only has he aroused great support, but also stiff opposition, including again, former allies, Sebastian. So I would say he will certainly be remembered as a giant in Israeli politics. As for what it meant for Israel as a state, I will leave that to the experts to decide. I would also note that as it relates to US relations, he has been particularly canny and really cultivated a relationship with the Trump administration that seemed to serve Israeli aims very well. But again, others will judge whether or not it had longstanding impact for Israel and for the stability of the region.

MALLABY:
I mean, I guess both in terms of the security angle and in terms of the business commercial angle, the strong connection with the United States seems to be paying off. Because on the one hand you've got the Abraham Accords and the ending of Israel's diplomatic and security isolation in the region, the sidelining of the Palestinian authority as a diplomatic force. So whatever you think about the morality of the conflict between Israel and the Palestinians, from an Israeli perspective, things have gone pretty well. The creeping annexation of the West Bank has kind of succeeded, right? Those settlements are extraordinarily unlikely to be rolled back. And so the aggressive policy seems to be working.

And then on the other hand, on the commercial side, I know because of my recent book on venture capital, that Israel has, I think more venture capital per capita than any other country in the world. And a very vibrant technology sector, which basically specializes in selling hard tech products into the US market and flourishing like nobody's business. So it looks, from the outside, as though you have this combination of political instability, multiple elections, multiple governments in one year, and at the same time a pretty successful country.

MCMAHON:
What you're talking about is what has been dubbed, startup nation, which is Israel's incredible entrepreneurial vibe that continues and has continued through the political turmoil that we've just been talking about. And you would know better than anyone with the research you've just done about what is the source for that. I would say partly it's immigrant spirit, like we've seen in so many other countries. And let's not also forget the large number of Russian immigrants that have come into Israel, which has made the Israeli relationship with Russia a very interesting one and a very tricky one. But Netanyahu also, we should point out, cultivated that very successfully.

Israel has continued to have kind of a wary stance on the Russian invasion of Ukraine. It is very alarmed about the use of Iranian drones and the whole Iranian angle there, while at the same time has been careful about how far it will go to help support Ukraine. And I would say just to emphatically yes, this is a country that's still thrived on the economic front. And that has transcended all these shaky governing coalitions and a security situation that continues to be a concern.

Sebastian, now we've talked our way into the audience figure of the week part of the podcast. This is where listeners can vote on, every Tuesday and Wednesday, on our CFR_org Instagram story. This week, the Instagram audience selected first, peace talks between Ethiopia and Tigray. Why is this significant?

MALLABY:
Well, a few points here. The goal to the peace talks to end the almost two year war in the Tigray region of Northern Ethiopia. This is a war in which thousands have died and many more have been displaced. Tigray's five or six million inhabitants have been suffering under a pretty terrible blockade, with communications and other things cut off. And famine is thought to be imminent there. It's not going to be easy to make peace. There was a ceasefire early this year, but it collapsed in August.\And now we face the prospect of these five day talks, organized by the African Union and held in South Africa. It'll be attended by the Ethiopian government and by a team sent by the Tigray People's Liberation Front, the TPLF. The US is involved in making this peace effort happen. The TPLF delegation flew to South Africa on a US military aircraft, accompanied by Mike Hammer, the US Special Envoy to the Horn of Africa. A minimum first objective for the talks will be another ceasefire and an end to the blockade.

MCMAHON:
So huge at stake, as you say, Sebastian, although it's hard not to be skeptical, given the deep, deep problems that have resulted from abuse of civilians by both sides. Given the involvement of outside forces from Eritrea enlisted by the Ethiopian forces against Tigray, is this something where we're looking at a long haul here, or do we feel like the two sides are actually motivated?

MALLABY:
Well, fighting is still continuing and both sides have been accused of atrocities. Recently, the Ethiopian Federal Forces have had the upper hand, so I guess they might feel they don't need to settle unless it's on very favorable terms to them. But at least they're showing up to the talks. And ultimately, strong outside powers can put pressure on the combatants. And when you've got South Africa hosting and the US escorting the TPNF delegation down, you got to think that some, at least pretense of good faith will have to be there.

But I mean, we have to remember at the same time, that this is part of a very, very long conflict. As a young reporter in Africa, I went to Khartoum where the Eritrean People's Liberation Front, as well as the Tigrayans were kind of camped out in opposition and exile from the Ethiopian regime of the time. And spending time with the Eritreans particularly then, the sense of take no prisoners determination to win independent sovereignty over what they regarded as their territory and break off from the South was very palpable. And so I'm just left with this feeling that these are deep, long standing animosities that are difficult to fix.

MCMAHON:
And I suspect this will be coming up again and again on this podcast and other programs, but we hope for the best, especially at a time in the Horn of Africa, is just dealing with an awful looming famine.

MALLABY:
And that's our look at the World Next Week. Here are some other stories to keep an eye on. Mexico celebrates the Day of the dead. Taiwan's LGBT community holds Asia's biggest pride parade. And Indonesia hosts Indo Defense, one of Southeast Asia's biggest defense shows.

MCMAHON:
Please subscribe to the World Next Week on Apple Podcasts, Google Podcasts, Spotify, or wherever you get your podcasts. And leave us a review while you're at it, we appreciate the feedback. Please note that opinions expressed on the World Next Week are solely those of the hosts or our guests, not of CFR, which takes no institutional positions on matters of policy. Today's program was produced by Esther Fang, with senior podcast producer Gabrielle Sierra. Our theme music is provided by Miguel Herrero and licensed under creative commons. This is Bob McMahon saying so long and Sebastian, thanks so much for joining us.

MALLABY:
Great to be with you, Bob.