BRAZIL-Temer's tactics

Maybe he needs to change his approach

Michel Temer is considered to be Brazil's quintessential political negotiator. He has been meeting with interest groups for the past several days to discuss his plans for getting the economy back in order.

Today’s press has reported that the labor sector opposes any plan to change the social security/retirement rules (a major contributor to the fiscal imbalance) and the São Paulo Federation of Industry opposes any plan to increase taxes, most especially the CPMF.

Maybe it would be more efficient if Temer were to bring both groups together for a “sit down” (Mafia style) to discuss their differences to see if they can arrive as some sort of compromise solution.

It would appear that they currently have mutually exclusive positions on the two approaches to the fiscal accounts.

If Temer were simply to present both sides with the “arithmetic” of the fiscal deficit and ask them for a solution, it might prove useful. If it does nothing, only a little time has been sacrificed. In any case, it would force both sides to confront the same situation at the same time.

Those opposing changes in the social security legislation have to confront the fact that the CPMF is a highly regressive tax the burden of which is greatest for the working poor. Moreover it is inescapable because it is collected by the banks at the source of the financial transaction being taxed.

As I observed often in the past, both sides of the War of the Kleptocrats were kleptocrats. Negotiating with only one side at a time inspires mistrust. Having both together requires that the opposing sides come to some sort of conclusion and that should ease Temer’s burden. 

And if they can’t come to an agreement, Temer’s burden remains unchanged. But the same problem and its consequences are now known to both sides. A stand-off by both is simply a negative-sum game. If Temer finds that he has to fall on one side or the other, it is a zero-sum game and if the two sides can come to an agreement it is a positive-sum game. The rational player will always seek the positive sum game if possible.